Trading strategy

[ynot]

Probably a dumb question but when currency trading, on average which strategy returns more.

Strategy 1. constantly trade small movements, often. (more risk?)
Strategy 2. trade larger movements less often. (less risk?)

Obvious of example strategy 2. $NZ buy $AU $0.80 wait until $AU hits $0.76 buy back $NZ....... repeat the process.

can strategy 1 better this example ?

[roddy]

Hi YNOT thats a very interesting Question
firstly a trader has to decide whether he or she wants to be a day trader strategy 1 or trend trader Strategy 2
From memory Van Tharp in his book "Trade your way to financial freedom"talks about expectancy and risk
the only way to be able to answer which strategy is more profitable you would have to know what % of trades are winners,what % are losers,for instance over a period of 12 months you may have only 4 out of 10 trend trades profitable
like wise with day trading if you stuck to a trading strategy and didnt deviate off it and took every entry you would after 12 months know on average how many losing trades and winners your system generated.
Now heres the thing at the start of any trade when your system generates an entry no one knows whether its going to be a winner or losing trade the ONLY thing we can control is the amount of risk which is how much am i prepared to loose of my trading capital on any one trade! Personally i dont risk any more than 1- 1.5% on any trade.In the above example if the AUD goes from.80 to .82 or .85 at what point do you get out in dollar terms that is my risk
Van Tharp on his website has a free online trading game which is a lot of fun and also challenging
roddy

[iansane]

not a dumb question.

in general it depends on the strategies performance.

lets assume both strategies have the same profitability. the expected value for every trade is a 0.3% profit.

strategy 1 makes 400 trades a year therefore earning 120% without compounding.

strategy 2 makes 40 trades a year therefore earning 12%

its obvious that strategy 1 is superior and has lower variance due to increased sample size.

however, strategy 2 can be the optimal strategy if the expected value is much higher than strategy 1.

besides... why cant you trade both? theyre pretty much independent of each other. if both are profitable then its optimal to trade both.