# Trading Strategy
A strategy has the following elements:
1. An edge in the market --> Signal generating Process (SGP)
2. A plan to execute the edge --> Risk management & Account parameters
3. Ability to follow the plan --> Discipline & Mindset
4. Ability to avoid self-sabotage --> This is an ever present risk in every endavor, and something one needs to be cognizant of while making important decisions
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## A. Signal Generating Process
### Indicators
1. **Supply and Demand zones**
- Amount of time spent in the zone previously - lesser the time spent, higher probability of same reaction
- Speed of approach this time - faster the approach, higher the probability of a reversal from the zone
2. **Dual Time Frame Momentum**
- Momentum indicators represent momentum trends
- Rule 1: Trade in the direction of large time frame momentum
- Rule 2: A trade execution may be made following a smaller time frame momentum reversal in the direction of the larger time frame momentum trend
3. **Pattern Recognition**
- 3 wave or 5 wave movements - [Elliot Wave Theory](https://www.investopedia.com/terms/e/elliottwavetheory.asp#toc-what-is-the-elliott-wave-theory)
- Normal reaction vs. reversal
- Categorizing the current trend and expected movements
4. **Trend**
- Daily and Weekly market trend lines
- Two highs/lows are needed to establish a trend
5. **Enviornment**
- VIX - high/low advancing/declining
- Economic Calendar
- Earnings Calendar
- Enviornment can predict rise in volatility/ breaking price levels (catalysts)
6. **Sensible Zones**
- Price before the previous big event heading into the next
- The low/high of the year or current trend
- The VWAP YTD, since the last big movement
- Big options strikes
7. **Candlestick patterns**
- Bullish and bearish candlestick patterns on different time frames
- Tweezer, double botton, lightning bolt, switch
9. **Volume**
- Large moves with low volumes will usually be reversed even if the original move eventually continues
- Look for a 40% reversal
- Gaps are essentially very large moves with zero volume
10. **Economic Cycles**
- FED Policy - rates rising, falling, flat?
- Inflation - rising, falling, flat?
- Manufacturing & Services PMIs - above/below 50? rising, falling, flat?
- Unemployment claims
- Secondary to price action, and never used for a long term view, these indicators can help detect overextended conditions
- Higher probability: when stock prices/ relative sector performance/ are overextended in the wrong direction - e.g. steep rallies when rates are rising
11. **Relative Asset Class Performance**
- Treasury bonds
- Corporate Bonds
- Metals
- Oil
- Real Estate
- Small, medium, and big stocks
- Cryptocurrencies
12. **Multiple Time Frame Analysis**
- Ranking and evaluating all indicators on differnt time frames
### Signals
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## Plan to execute the edge
### Risk Management
1. Risk per trade - max 2% of account equity
2. Risk per day - max 5% of account equity
3. Risk per month, 3 months, 6 months, and 1 year - 2%, 4%, 5%, 10% of account equity (as of starting of that period)