First steps in developing one’s own trading strategy

Any trading tactic must consist of five stages:

• determining of the global trend;
• determining of the beginning of the retracement from the global trend;
• awaiting for the completion of the retracement;
• receiving a confirmation from another indicator and open a position;
• placing Stop Loss and Take Profit orders.

Let’s consider all these stages in detail by the example of a trading tactic based on MACD and Parabolic.

Let’s suppose that:

• the trend is upward when the MACD is above zero and there is no bullish divergence from prices i.e. each new high on the prices chart
• is confirmed by another high of the indicator (the MACD );
• the trend is downward when the average over MACD is below zero and there is no bearish convergence with prices i.e. each new bottom on the prices chart
• is confirmed by another bottom of the indicator (the MACD);
• when the long term average crosses the short term average from top to downward we will consider it the beginning of the downward retracement. The prevailing trend must be upward;
• when the long term average crosses the short term average bottom-upwards we will consider it the beginning of the upward retracement. The prevailing trend must be downward.