pick the channel breakout for the position trading and inside days for the
day trading. I think they are the best in terms of keeping risk tight yet having
a large profit potential.
A final comment on tying the various techniques together is what I call
the holistic or weight of evidence method. The basic idea is that you trade
according to the weight of the evidence. Let’s say you are using Conqueror,
channel breakout, and trend analysis. You will go long when the majority
of those techniques are bullish and short when the majority are bearish.
You will always use the tightest stop of the three.
Now note that it is possible that you will be flat the market on occasion.
Let’s assume that all systems are flat to start. The trend analysis then gives
a buy signal to go long and we enter a buy order that gets filled. We are
now long with a stop when the trend analysis tells us to get long. We then
get a sell signal from the channel breakout that gets filled before we are
stopped out on the trend analysis. You take that trade as well, which gets
you flat the market. Technically, you are now long and short with protective
stops in the market. Basically, you will get long again when the channel
breakout trades get stopped out or get short if the trend analysis gets
stopped out.
The market trades along for a while and the Conqueror gets long
on the same day that the channel breakout gets stopped out. You are now
long three contracts with three different stop losses. You continue doing
exactly this method so that your position will vary from three short to
three long and everything in between. You will therefore be the longest
or the shortest when the market is the strongest or the weakest. And that
is exactly what you want to be.
Smaller investors will also find the weight of evidence to be useful. In
this method, you don’t go long until, say, all three methods turn bullish. In
other words, you would wait until two methods are long and then you put
in an order to enter long on the signal for the third method. You then place
a protective stop at the point that the closest method would get stopped
out. In other words, you may be entering on a trend analysis entry stop
but exiting on a Conqueror exit stop. In other words, you will only be trading
one contract but you wouldn’t be entering until all three methods are
long and are exiting the position when just one of the methods exits. By
using these techniques, the smaller trader can gain exposure to the market
without entering very many trades.
Source: How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life
