Crafting Your Very Own High Probability Trading Strategy
The following is a book review of Robert Miner’s High Probability Trading Strategies: Entry to Exit Tactics for the Forex, Futures, and Stock Markets (Wiley Trading). A market is a dynamic place where emotions change in an instant and to have one trading strategy isn’t enough anymore given how quickly information reaches investors via streaming news, real-time reporting, and social media. You must constantly be learning new skills and honing your craft, and I’m always looking to add another strategy to my trading arsenal.
All too often I speak with traders who want me to analyze a stock chart for them to see if I can tell them what went wrong with their trade and one of my first questions is, “Why exactly did you buy this stock”. Many times the reply is that they felt it was going to go up, but they didn’t really have an exit plan if the trade went against them, or taking should it move in their direction. They’re sort of along for the ride to see what happens. If you want to learn how to recognize optimal trade conditions, identify crystal clear entry and exit strategies, all while learning the skills of trade management, then this is the book you’ve been looking for.
Miner’s book is essentially broken up into 4 different sections and it even comes with a CD that you are to use only after reading the entire book. The examples used throughout the CD will not make any sense to you unless you understand his system from A to Z. Given that a chart reader needs to look at a lot of charts to begin to trust a system, the CD is a complementary tool in the book.
Major sections of the book:
- Four strategies used to find a trade
- Trade management rules
- Case studies of his students applying his methods
- Intangibles and market psychology
The meat of this book consists of the four strategies (seen below) Robert Miner uses in conjunction to find a high reward, low-risk trade. I would even argue these strategies are so sound that you could take one of them alone and develop a trading plan around it. The author believes to give you the highest chance of success, you must use all four factors which consist of momentum, pattern, price, and time. This strategy applies to all markets and time frames.
Four Dimensions of Market Position:
- Multiple Time Frame Momentum Strategy
- Elliot Wave Pattern Recognition
- Fibonacci Retracements
- Dynamic Time Strategies
The first strategy is using 2 different time frames determined by the person, depending on what sort of trader you are, and then deciding on an indicator that you want to use for your timing signal. For instance, if you wanted to use a Fast Stochastic move coming up from an oversold condition on a daily chart, that would decide your overall direction. You could then use a 60-minute chart with that same indicator to find the point you’d execute your trade.
Having said that, there are 2 caveats to make here.
- This strategy is used in conjunction with the others to select the trades with the highest chance of success.
- It’s important to adjust the settings on the indicators as to eliminate whipsaws in your trading. The only flaw I found with this book is that the author pitches his Dynamic Oscillator that he’s developed and is part of an overall software package that you can purchases. That is the indicator of choice he uses for his momentum strategy. However, it is very clear that it’s just as effective using the Macd or Stochastics indicators. I just prefer that when I buy a book that there’s not an up-sell coming.
Miner then weaves in basic Elliot Wave patterns to recognize continuation trends or potential reversal points to use in conjunction with the momentum strategy. This chapter I had to reread as I’m not a fan of this sort of chart reading, but I can see the advantages of using these simple strategies to predict where a market is going. He then adds a new way to use Fibonacci to decide areas of support and resistance and learn the difference between internal and external retracements and alternate price projections.
Perhaps the most interesting of the four to learn for me were the time strategies that use time units to determine retracement levels.
Most highs and lows are made in proportion to one or more earlier sections of the trend or counter-trend. Time retracements are made just like price retracements but on the time axis, and they use some of the same ratios used for price retracements.
These time retracements use many of the same ratios that are used in price retracement, namely the fib retracement levels, .382, .50.618, 1.00, and 1.618. So instead of looking at the fibs horizontally, you would use the vertically to predict a rally or a continuation.
The author points out that many traders use lagging indicators such as oscillators or moving averages to base their trading strategies around. He does use one lagging indicator in his dual time frame method to find stocks that show a particular trend direction he’s looking for, but the other three are all forecasting in nature with predictive capabilities. If you’re trading plan solely relies on lagging indicators, you’ll be at the mercy of the market a large majority of the time. His method, which has taken him over 20 years to develop and refine, will prepare you in advance for a probable trade condition.
The majority of the book after the disclosure of his complete trading plan is showing how he ties everything together through examples and case studies from many of his students. His system will take some time to learn and carry out, as there most definitely be a learning curve, but I believe he lays a great base as he takes you through step by step each strategy in a baby step sort of way so no matter what your skill level you’ll have everything you need to get started with his methods. I’ve even gotten a new perspective on how to use a couple of the indicators that I now use. The author told his publisher that he wouldn’t write this book if he wasn’t able to have it accompanied by a Workshop CD and it’s a good thing that his readers have access to these examples because they really help clarify many of the questions that you will ultimately have after digesting this book. I would recommend this book to anybody who feels as if their current trading strategy isn’t giving them the results they’re looking for, or the seasoned trader who is curious about learning a new technique.