The success in any trading whether financial or stock or even commodity requires a lot but to be fair the single most defining factor is the strategy you have in ensuring that you achieve both your long-term and current trade objectives. In the case of financial trade such as financial spread betting, winning strategies in approaching the trade are what have earned traders success and even though the prime objective would be to certainly have a strategy that earns you good profits, the truth is that factors such as how often you will use the strategy and what risks and financial management obligations are associated with it will count a good deal in coming up with the same.
Technical or basic strategies which do you go for?
The truth about trading markets is that more often than not the basic approaches used in trading have been the fundamental or basic strategies and the technical approaches strategies. While the former will base its operation on grounds of analysis of investment company’s reports and ratings to determine their compatibility with your investment requirements, the latter will delve in the profound use of indicators and formulas in the ultimate objective of ensuring that the prospective price movements are correctly foreseen. While the two have their own abilities, the reality is that many markets have preferred the technical approach in coming up with strategies as well as analyzing the abilities of existing ones.
Fundamental indicators in trading
The basic objective of indicators is to ultimately help in making a decision concerning your investment and as much as there are a lot of those that come with many trading strategies, the discussion of all of them cannot be exhaustive and for that reason, we will just deal with a few that are widely used in modern trading and them include among others: moving averages, Pivot points, price movements, the moving average convergence divergence (MACD) and the Average Direction Index (ADX). Others include the stochastic indicators and the Average True Range otherwise known as ATR.
The ultimate goal of the indicators is to just provide a hint on where the opportunities are and even though each will have its own way of doing it, a combination of all this is widely recommended. Just to highlight the importance of some in trade, the investor with an independent approach in the trade would find MACD very useful while for the case of those who will need to know the price volatility of any investment, then the ATR definitely will prove very useful. For traders particularly in Forex which to be honest is characterized by absolute liquid attributes, the Pivot points are the best for such markets. With all factors considered, however, the truth is that indicators will depend on the kind of trade but a combination of two or more is widely felt by experts to be very effective and one indicator that actually proves compatible with many trade approaches and strategies is definitely the price movements. Others like ADX are involved in determining trends while the issues of determining oversold instruments are best done by the stochastic indicators.
The concept of the black box- as a trading strategy system
The concept of the black box when it comes to matters of money and finance is what has been referred to as the algorithm trading system and the logic behind this tag is purely associated with the principle operation method employed by this strategy. The process involves a system that is used for a signal generation but unlike many other signal generation methods, the black box does it on the criteria set by its designer and for that reason, the apparent fact is that the user has very little control if any of the whole process. What is involved here is an extensive degree of trust that indeed the system has been designed by an expert designer with good knowledge on generating profitable signals and even more importantly, the logic at which the system follows in ultimately providing the signal must be proven to be workable and within the rules of the trade.
The basic Pros and cons of the strategy in trading
The main question that will always dominate the mind of any trader before taking up any strategy will definitely be the concern of whether indeed the system works and considering that there can never be a system that is 100% perfect, the question will tend to shift to, what are the opportunities and risks associated with it. The black-box system in trading is just another strategy and as it is the case with many others of its fabric, the strategy has a lot of benefits but even so, it has its share of realistic shortcomings all of which will be discussed here below.
a) Advantages of the strategy in trading
- One of the single most influential advantages of the system is based on convenience and ease of trade. The generation of signals by an already designed system is not only important in providing traders with an easy time in trade, but also it has meant that you don’t have to be a seasoned trader or financial expert to start trading in financial markets because one of the most technical aspects of the trade is done for you by the system.
- Secondly, the black box trading system is free of human manipulation and errors and even to some extent, the system is immune to human feelings that may have a significant influence in trading success. This is important in maintaining the desired degree of objectivism and empiricism in generating crucial signals.
b) Dis-advantages of the strategy in trading
- As one of the notable shortcoming of the black-box trading system, the fact that the systems are designed to just suit certain financial markets means that it’s not all inclusive and for that reason, prospective users are left with the burden of analyzing and knowing which systems suits their trade.
- Secondly, although the test results provided by the makers of the system are viewed to be very correct, the truth is that they are restricted to certain capabilities that may limit the performance expressed by the designer.
- Another shortcoming also has to do with the extra cost associated with the purchase and subscription fees and furthermore the flexibility of signal generation is limited since in most cases, you have to stick with the criteria of the system.
- Considering that the systems are designed by a human being, there can never be safe from errors and even though they are extensively tested, the truth is that there is still that margin which can have very real consequences in trade
- Another disadvantage of the strategy is that it is based on mutual trust and not a certainty and therefore it does not give the user a chance of expressing his thinking abilities hence limiting creativity and innovation in financial trading. N.B: as one of the ways used to describe the strategy, many popular descriptions will name the black-box system as either client sided or just server sided.
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