How do you choose a strategy?

We can safely say that we live in the age of the strategy. Put differently: on the markets, we live in the age of the search for the Holy Grail.

What is a strategy?

Strategy is the art of winning a war. If we go into the detail, the word means a way of thinking, an overall plan, a sequence of steps by which a goal can be reached. In trading it has picked up the added meaning of interpretation.

A trading strategy is therefore an interpretation of the market, the uncovering and exploitation of the enemy’s strategy, so to speak, in order to secure victory. And since we are talking about the markets, victory of course means money.

One of the first pieces of information a beginner trader meets is the winning strategy that will make all their dreams come true if they use it. That, of course, is only marketing, and everyone pays their own tuition fee for having been swept away by the slogans.

The marks of a bad strategy

There is no mathematical model behind it - this matters a great deal. You cannot see why it works, or why it would work. It is fine to talk through a few principles, and a bit of “this means this, that means that”, and then the “do this, do that” steps, but what lies behind them?

A more experienced trader can ask the teacher of a strategy too many questions with no answers, which leads by a short route to increasingly visible emotions and can end in personal attacks.

The marks of a good strategy

• It is mathematically grounded.
• It is transparent and logical, and the underlying principles are understandable.
• It is built on market analysis whose details you can learn and understand.
• You can see the traders for whom the strategy works.

Your strategy

Well, yes, that is a category of its own. We can pick strategies that genuinely work and still be unable to make them work for us. One reason is that we did not understand them or did not practise them enough; another is that our mental blocks keep sabotaging their application; and a third is that temperament plays a part in it too.

Someone who is a professional at breakout strategies, someone who is a professional at Elliott wave and someone who is a professional at Fibonacci are three different types of person.

There is one that suits you, because it builds on what you happen to be good at, and there is one you will never be successful with.