Recently, I have been testing the “Pivot System”, a particularly simple trading strategy. You don’t need to know many technical indicators, you only need to know the candles and moving averages. This system was not invented by me.
It was written in the book by the American futures trading master, and it is effective in pro-test. Because the long-term test result of this system is positive, as long as you strictly abide by the simple trading strategy discipline and adhere to the rules of the system, you can make money in the long run.
The reason why it is called the “Pivot System” is that this system looks like the price moves up and down around an axis, and the application is also very simple, as shown in the figure
This system involves a few technical indicators, only one SMA10 (10-day simple moving average), which is readily available in any trading software. Then look at the price (to understand the candle chart) around the 10-day moving average, choose the timing of entry, the timing of exit is slightly more complicated.
Simple Trading Strategy Rules:
Taking SMA10 as the baseline (pivot), when the price crosses the baseline, it is ready to enter the market. The crossing after the trend reversal is valid, and the back and forth crossing that oscillates along the baseline is invalid. As shown
When the price crosses the baseline upwards and the closing price is above the baseline, enter the market a little bit above the highest point of this candlestick, and set the stop loss a little bit below the lowest point of this candlestick.
When the price crosses the baseline and the closing price is below the baseline, enter and go short a little bit below the lowest point of this Kline, and set the stop loss a little bit above the highest point of this Kline
Starting from the crossed K-line, set trailing stop loss. When the price reaches the third candlestick, move the stop loss point to the lowest point of the second candlestick (when doing long) or the highest point (when doing shortly), and so on. When the stop-loss point exceeds the breakeven point, it becomes a moving stop profit. This is the most important part of this system, and trailing stop loss (or profit-taking) is an important means of exiting the market. As shown
There is also a way to leave the market when technical indicators give sell signals (yin and yang, yang and yin, Doji, morning star, evening star, dark cloud cover, piercing pattern, W bottom, M top, etc.). But this requires a certain understanding of technical analysis.
The above is the entry and exit rules of the pivot system, it is that simple. But it’s not enough to just get in and out, there are some precautions to keep in mind.
- Different markets have different selection time periods, so it is necessary to find a suitable period according to the actual situation. For example, gold is suitable for using the pivot system in the K-line chart with the unit of the day; some currency pairs of foreign exchange are suitable for 1-hour K-line chart (intraday trading), and some currency pairs are suitable for daily K-line chart; Bitcoin is suitable because of its large fluctuations. 15-minute candlestick chart. I have not tested the stock, and interested friends can try it by themselves.
2. When using this system, pay attention to whether there are economic data or important speeches on the day, and avoid them. It is best to enter the market after the price stabilizes after an important event. This can avoid violent fluctuations caused by data or speech.
3. Try not to go in the opposite direction of the general trend. The risk of a simple trading strategy in the same direction is less. If you do a reverse transaction, you should make a profit and leave the market as soon as possible. That is to say, look at the trend of the daily chart when doing 1-hour K-line trading, and look at the trend of the weekly chart when doing daily chart trading.
4. Find more markets to monitor at the same time, because the ideal entry signal does not appear at any time, and the more trading varieties you pay attention to, the more trading opportunities.
5. Although the system is very simple, you still need to make a trading plan. When you see a candle line that crosses the baseline, quickly make a trading plan. The most important thing is to write clearly the exit strategy. In addition to the trailing stop loss, is there a target exit price, or if there is a possibility of W bottom or M top, then take the initiative to leave the market when it reaches the bottom or top, and encounter How to deal with emergencies and so on.
6. Control the position, do a good job of fund management, do not operate full positions at any time, you can use the 26 rules.
7. Short-term trading strategies, such as intraday trading, do not pursue a profit-loss ratio of 3:1, which is generally difficult to achieve. 2:1 is fine, and 1:1 can also be accepted in special circumstances. The most important thing is not to let profits become lost.
8. This system is a semi-mechanical and semi-autonomous trading system. Entry and trailing stop losses are mechanical and must be followed. In case of special circumstances or taking the initiative to leave the market based on other technical indicators, it is autonomous. The premise is to make a good trading plan and implement it in strict accordance with the plan. If you encounter a situation that is not written in the plan, it means that the trading plan is not perfect and you should practice more.
9. Although the system is simple, it is difficult to actually trade. Because to overcome greed and fear, psychological factors are the biggest enemies that affect trading. My suggestion is not to keep an eye on the market, and to do it every time the trailing stop is changed. The essence of trading is in the plan before trading. Once you start trading, don’t pay too much attention to price movements, but believe that your system can make money for you.
10. Use simulated trading to test the performance of this system in the market you are concerned about, solve some details, and then start real trading.
Now that I write about a simple trading strategy, I have to say a few more words about technical analysis. It is biased to compare the investment methods of various funds with the trading methods of retail investors.
Professional investment institutions pay more attention to fundamental analysis because of the large number of funds and make big money by grasping major trends. Retail investors and individual traders have small capital and flexible operations, and they can make money with good technical analysis.
In different markets, technical analysis and fundamental analysis account for different proportions. Fundamental analysis of the stock market accounts for more than that of technical analysis of commodity markets. To be honest, fundamental analysis involves too many factors, it is simply endless, it is impossible to consider all factors.
The technical indicators analyze the mentality of all market participants, no matter what changes in the fundamentals, they will ultimately be reflected in prices. At the stage when the amount of funds is limited, retail investors can make money faster through technical analysis, with a lot of 40% annualization, and a lot of 100%. However, technical analysis has a ceiling. When the amount of funds reaches a certain level, the fundamental analysis should be used, similar to institutional investors.