Noise to money

The usual way of trading is straight linear. A position is entered at a level x, whereby the profit target is located at level y, the decision is long or short.

For good trades with a risk reward ratio of better than 1:1, a trader always needs breakouts to become profitable with the linear way of trading.

Actually, the market consists of one more direction: Sidewards!. This means, if one is able to trade additionally to long or short the 3rd direction too, there will be a statistical advantage of 66% and this means again: Lower risks / higher profits.

The following graph demonstrates this.

This example shows a comparison of different ways of trading, all based on the same instrument which was the DAX within the period as shown. The range was actually a big side range, with plenty of side ranges in smaller timeframes. As one can see, the equity, generated by an algorithm of StereoTrader (blue curve) is rising when the underlying is rising as well, but also when it was not really moving up or down. Furthermore, the drawdown phases are never that strong as the down moves of the underlying. Hereby no filters were used, no manual interaction, no tries to predict the direction of the future – just pure math.

The account size with this test was $10000, the size of the position $25 per point, the trade direction was always long.

The green and red equity curves in the lower left corner show alternative trades. The green one was a single linear trade which ended in a margin call after 200 points downwards, the red was the same ATR logic, but with full initial risk instead of a distributed risk. This method ended in a ruin after a few days.

Strategic orders

The Strategic Order section of StereoTrader deals with non-linear trading based on different algorithms. Any backtest and any live test shows the same result in 95% of all cases. Trading algorithmic is far more profitable and has far fewer risks than linear trading. The only circumstance where a successful algorithm is less profitable is in the case of a breakout because the initial position size is always just a fractional part of the actual entire position size. The entire position is always distributed at several levels, based on the current volatility of the market.

The Strategic Orders do not claim to be the holy grail, they cannot turn a series of wrong decisions into winning trades, but they excuse mistakes. Live tests which were posted live in different forums showed also, that algorithms like these are able to keep the balance stable for quite a while, even if the wrong trade direction was chosen.

In general, the Strategic Orders combine the ATR (average true range), which measures the volatility, with the distribution of chained, dynamic special order types of StereoTrader. Several presets are ready to become tested by you.