Where To Get Trading Strategy Ideas
Published May 19th, 2020
I’m often asked how I come up with strategy ideas to test and potentially put to work.
Unfortunately I’m not an overly creative person, at least not when it comes to creating something from scratch. However, I am creative at adding my own ‘colour’ to other ideas floating around the ether.
For example, our main trend following strategy, the Growth Portfolio , which I continue to use today to manage my retirement account, was originally built in the late 90’s based on the Aberration Trading System.
The Aberration Trading System was developed by Keith Fitschen in 1986 then released to the public in 1993. It’s a long term trend following system that uses Bollinger Bands. It trades a basket of futures – which is exactly how I first started using it.
My small amount of ‘colour’ back then was to only take trades when the initial risk, defined as entry minus stop loss, was less than 3% of my capital. If it was higher than 3% I skipped the trade.
In 1998 I started to look at using the same strategy on stocks. The additions I have made over the years are:
1. Completely reinvented a different version of Bollinger Bands
2. Added a regime filter to align signals with the broader market trend
3. No longer use fixed fractional position sizing.
4. Use a 2-step or ratchet trailing stop
5. Use a relative strength filter vs the index to reduce signal noise
What about my mean reversion systems?
I started researching shorter term stock systems during the latter stages on 2008 when my trend systems were sitting in cash. (I had traded one on futures in the late 90’s which was based on a setup from the Larry Williams book, Long Term Secrets of Short Term Trading).
That specific system was fine for minimal futures markets, but difficult to execute across a portfolio of stocks. Back to the drawing board.
I was perusing Collective2 website in late 2008 and came across a long only mean reversion strategy that seemed to do consistently well and fit the parameters I was looking for. The site listed prior trades, so being inquisitive I put them into excel and started reverse engineering the signals.
Sure enough, with a bit of grinding, I was able to almost replicate the results and grasp what was going on under the hood.
That strategy become the first iteration of various short term strategies I trade today, including the Day Trade system.
So bottom line is that if you’re looking for ideas and, like me, you’re not the creative type, then look for a style that suits your personality and beliefs, then adapt until you get the result you want.