Home > Markets, trading > Profitable ETF Trading Strategies: adapting to a changing market

Profitable ETF Trading Strategies: adapting to a changing market


The market goes through changes all the time, as market participants and their methods and objectives change through time.  Sometimes trend following will dominate, sometime reversion to the mean trading will be effective, other times channel trading with strict profit targets will work.

It is normal for traders to develop preferred methods of training, based on our experiences and our preferences, and our style of trading and our chosen markets. It is normal to have periods of time when your preferred methods are especially effective, and other times when it is heavy sledding.

As market conditions and patterns change it is normal to see a change in how effective our chosen methods perform. Since market conditions change in unpredictable patterns and over changing periods of time, it is never easy to formulate rules that govern how to navigate these transitional states.

If you are looking to be a full time trader, you can expect to have to routinely sense and adapt to changing market conditions on a regular basis. It is worthwhile then to develop a mind set that expects this kind of routine change, and a system to routinely manage the transitions.

Here are some things you can do to help you stay in tune with a dynamic market

1. Reduce the frequency of your trading so that you only trade patterns that strictly meet all of your preferred criteria.

2. Trade at reduced risk levels  and reduced size until a new pattern of performance emerges.

3. Monitor the moving average of your trade results to be alerted to reduced performance quality which can signal a change in market conditions sooner than is evidenced in individual technical indicators.

4. Have a variety of systems and strategies that are known to outperform in certain market conditions, so that your action plan adapts to a changing market.

5. Use adaptive risk measures that fine tune your system so that your system parameters remain routinely aligned with market conditions.  Having trailing stops that are a function of Average True Range (an adaptive market indicator) is an example of this kind of adaptation.

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  1. Ashay Brahmbhatt
    July 11, 2009 at 1:14 pm

    Ken,

    Thank you so much for taking the time to write this. I will incorporate the above into a plan.

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