The most important aspect of any effective trading strategy is to be able to identify for your selected trading timeline the position structure that is going to provide the most significant Reward for the least Risk.
It doesn't matter whether you're going to go for a highly leveraged and hedged complex multi-spread on exotics or taking a simple directional bias on an FX pair. To be able to zero in on the biggest bang for your buck, appropriate to your trading timeline is simply boringly good business practise. It's also the hardest part of the strategy building process. It’s hard because most traders believe the real skill is in the execution side rather than the selection side. That’s where all the squiggly coloured lines and histograms live and it’s exciting and fun, but in reality it’s the least important part of the process.
Once you've defined your selection process and profile – the selection side - the setups, entries and exits, position sizing and money and risk management – the execution side - are all secondary - vital to your trading success, but hugely less effective if you don't get the first bit right.
This doesn’t only apply to FX of course; it applies to the entire pantheon of tradable financial instruments.
And before you consider I’m just talking about scanners, I am and I’m not. There are no commercially available scanners that do this job properly. The reason for this is that the designers and builders of scanners are building into the guts of the scanner their own beliefs and their own shortfalls and misunderstanding about what it is that makes for preferred differential stock selection. Even those that allow you to fully customise them and add your own criteria and values miss the point rather more so than those that are black-box or nearly black-box.
I advocate building your own Selection Engine. While any Selection Engine’s target group and subset formation criteria are always totally individual and dependent upon each traders’ own personal trading timeline, preferred area of trading and personal style of trading, the basis for its construction and the necessary comprehension of the underlying factors which dictate high-probability potentialities in comparison of one stock over with another for instance, is grass roots simple and totally explicable. But I’m not sure I’m in the right location to take this further here now.
