“How in the world do I become a cricket?” the ant asked. Crossly, the owl replied: “I’ve given you the strategy. Surely you can figure out the tactics on your own.”
Traders have different ideas when it comes to the definition of a trading strategy. Most of them believe that strategy is a combination of price indicators and chart patterns. This includes double (triple) bottoms, double (triple) tops, head & shoulders, or various divergences. This includes the existence of filters and a system of signals for opening and closing transactions similar to envelopes, trendlines, and volatility. The best systematic approaches to trading include initial screening methods such as Alexander Elder’s weekly chart or Van K. Tharp’s big picture.
What is a strategy?
In spring 2008, the quantitative aspect of this problem attracted my attention. Intrigued, I asked various traders about the number of strategies they use. As I expected, their answers varied. Mayank Bajaj of India uses one, Elder uses two, and Catherine Shuster uses as many as necessary. I have used as many as six, while E. Berne said about three; Daniel Wiggins replied he used about 40 and Kerry Lovvorn said about 250 that he had researched.
I got the impression the estimates of the number of trading strategies were erratic. Strategies mostly indicated the different combinations of trading rules. For example, Bajaj expected hanging man or hammer candles to be reversal days. Is this a strategy? To me, it is more of a standard tactical position, similar to corner playing in soccer. This means that participating in the team attack is not necessary. Instead, you can wait for the corner kick by staying conveniently close to the goalposts. As soon as the ball arrives, kick it past the goalkeeper! This is a way to score goals, but it is not a strategy.