Trading Philosophy
The core principles that guide our algorithmic trading approach.
Core Principles
1. No Single Indicator is Perfect
We combine multiple indicators across different categories to reduce false signals. A single indicator might give a false positive, but when 5+ indicators align, the probability of success increases dramatically.
Single Indicator Accuracy: ~55-60%
Multi-Factor Approach: ~70-75%
2. Trend is Your Friend
We prioritize trend-following over counter-trend trading. Fighting the trend is one of the most common mistakes traders make.
"The trend is your friend until the end when it bends." - Ed Seykota
Our approach:
- Use trend indicators (EMA, Supertrend, Ichimoku) to identify direction
- Only take trades in the direction of the trend
- Use momentum indicators to time entries
3. Risk Management First
Preserve capital - it's easier to make money when you have money to invest.
| Rule | Description |
|---|---|
| 2% Rule | Never risk more than 2% of portfolio on a single trade |
| Position Sizing | Adjust size based on volatility (ATR) |
| Stop-Losses | Always have a predetermined exit point |
4. Data-Driven Decisions
Remove emotion from trading by relying on quantitative signals.
❌ "I feel like this stock will go up"
✅ "RSI is oversold, MACD is bullish, price is at support"
Our scoring system converts subjective analysis into objective numbers:
- Bullish Score: Sum of all bullish signals
- Bearish Score: Sum of all bearish signals
- Net Score: Bullish - Bearish → Recommendation
5. Confirmation is Key
Wait for multiple indicators to align before acting. A single bullish signal is not enough.
Strong Buy Criteria:
- Net Score ≥ 4.0
- Multiple indicator categories confirming
- Trend and momentum aligned
The Multi-Factor Approach
Our signal system combines five categories of analysis:
| Category | Weight | Purpose |
|---|---|---|
| Trend Indicators | 35% | Direction |
| Momentum Indicators | 30% | Speed/Strength |
| Volatility Indicators | 15% | Risk/Opportunity |
| Volume Indicators | 10% | Confirmation |
| Valuation Metrics | 10% | Context |
Why Multiple Factors?
| Single Factor | Multi-Factor |
|---|---|
| High false positive rate | Reduced false signals |
| Misses context | Complete picture |
| Reactive | Proactive |
| Emotional decisions | Data-driven decisions |
What We Don't Do
- ❌ Predict the future - We react to what the market tells us
- ❌ Chase hot tips - We rely on technical analysis, not rumors
- ❌ Ignore risk - Every trade has a stop-loss
- ❌ Overtrade - We wait for high-probability setups
- ❌ Fight the trend - We go with the flow
Next: Trend Indicators →