This book was written with two objectives in mind: to provide futures traders with specific trading systems, and to provide a methodology to employ these trading systems in systematic trading. Both of these elements working in synergy are required to win in futures trading. An effective trading system puts in place the prospect of profitable trading. In turn, a skilled trader uses a trading methodology to take advantage of this prospect in a way that is appropriate and is consistent with the requirements of the trading system in use. This harmonious cooperation of the trader/system combination will eventually lead to consistent long-term profits.
The global financial system, an important part of which is the futures markets, is a very complex, dynamic process. Advances in technology have facilitated the rapid flow of funds between investment vehicles that can be located on opposite sides of the globe. It seems difficult for even the most well-educated, well-trained human minds to predict the movement of capital in a way that will lead to systematic gains. Sudden reversals in the direction of market prices can make previous hard-earned gains disappear in a matter of hours, or even turn into devastating losses. Recouping the losses can be a difficult task.
The systems and methods shown in this book attempt to deal with the nature of the futures markets by adopting a short-term trading approach based on historical price patterns. These patterns can be easily programmed in the computer and monitored on a daily basis. Positions may be placed either at the close of the day that a pattern formation is completed or at the open of the next trading day. A profit target and a stop loss are placed immediately, as soon as the position is established. The average duration of a trade can vary from one to a few days, depending on the profit and loss objectives of the particular patterns employed in the trading system model.
The book is divided into three sections: 1) Backgrounds; 2) Trading with Short-Term Price Patterns; and 3) Library of Specific Price Patterns.