You might think it’s only an idea, but this concept has been responsible for creating unbelievable fortunes.
And it’s particularly well suited for making new trading strategies.
What is this special sorcery I hear you ask?
Well, think how horticulturalists might graft two existing types of Roses together to create a brand new strain that possesses particular properties…
Or how the original business plan for FedEx was hatched by fusing together the existing (but slow) airfreight shipping, with the speedy ‘hub-and-spoke’ distribution model used by banks for clearing cheques.
Yes, it’s the simple and vastly under-rated idea of fusing two or more existing approaches together in order to create something new.
So there’s nothing revolutionary about this. It’s really just smashing together two existing ideas. But when a new ‘third way’ is born it can often eclipse the sum of its parts. And sometimes in a big way too!
Now when it comes to combining trading ideas it really can be as simple as pinching the trailing stop loss idea from an end-of-day strategy and adapting it for your intraday strategy.
Or you might take the timing of your trade entries from a scalping system you’re already familiar with and apply it to the weekly charts. This might give you low risk entry points for position trades that can roll-on and rack up the profits for the next 4 months.
In fact, the potential for experimentation is unlimited!
And even better: if you’re anything like me you’ve probably got loads of trading tactics – both fully developed ones and a whole host of half-baked ideas – sitting right there on your computer’s hard drive.
And there’s certainly no shortage of tested systems you can download from the internet if you haven’t.
In fact, I’ll bet you could gather together enough raw materials to start fusing and crossbreeding ideas within the next ten minutes!
Trading is a very personal endeavour.
What suits one person down to the ground might torment and irritate another because it doesn’t fit their trading ‘personality’.
But when you can chop bits from one system and slot them straight into another there’s no need to reinvent the wheel. There’s no reason why you can’t build your own approach directly from the tried and tested parts already available to you.
Think of it like customising a car to fit your particular needs: lowering the suspension or tuning the engine. No need to completely swap the vehicle, just upgrade and change the parts that’ll give you the qualities you want.
Now it might sound a bit daunting to start chopping and changing parts of a trading system. But it shouldn’t. Not when you remember there are only really 5 ‘moving parts’ for you to consider.
So let me refresh your memory…
If you fancy trying your hand at tuning up a trading system or crossbreeding two systems together, just consider these 5 building blocks. Think which might give you the quickest upgrade in performance you need and then run some tests.
And don’t worry, there’s nothing to break, your test results will soon tell you whether your idea is worth pursuing or if it’s time to go back to the drawing board!
Test your borrowed ideas one at a time and see what you can come up with…
5 building blocks for crossbred trading systems
1) What to trade: Think about the instrument (the markets themselves) and the vehicle you’re using (this means the way you are accessing the market – e.g. spread betting, binary options, futures contracts). A new and efficient ‘crossbred’ system might be created by simply applying a Forex strategy to a stock index market like the FTSE100, or by adapting a stock trading system to suit binary options trading.
2) How much to trade: This is the part of your system that tells you how much to buy and sell on each trade. If you’re looking for accelerated growth to a small account you might tweak your money management settings using the settings from more aggressive approaches. And if you’re already trading a sizeable account you might usher-in a more conservative methodology to protect and preserve your existing trading bank.
3) When to enter a trade: This is the part of your system that gives you the green light to go – your entry signal. The world is your oyster here. No matter what your timeframe of trading you’ll be able to borrow and test ideas from almost any other trading system. Scalpers might ethically steal a Swing trader’s approach and there’s absolutely nothing to stop a long term position trader looking to the day trader’s toolbox for ideas. Don’t let preconceived prejudices stop you discovering a new little gem.
4) When to exit a winning trade: Exit strategy on winning trades is probably one of most neglected areas of trading yet one that can make a big difference to your results. This is definitely an area to spend some time on. See what new ideas you can plunder and introduce to your campaigns from other trading systems.
5) When to exit a losing trade: Don’t be afraid of the losing trade – they are an essential part of any systemised approach. Be very wary of any system that seems to shrug them aside as if they don’t matter or that they won’t happen – that’s NOT a good approach to model! But otherwise feel free to test and appraise any idea you come across. There are some really clever ways of applying trailing stop losses I’m currently testing myself. And you know what? I didn’t invent a single one of them!
So get your lab apron on and get experimenting. Let me know what new creative new formulas you’re cooking-up.
This article first appeared on Articles | Trader's Nest. Read more and comment here