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CTA TRADING STRATEGY - ONLY SYSTEM YOU NEED TO USE1 What is CTA Trading? 2 Types of CTA Trading Strategies 3 How does CTA Trading Strategy work? 4 CTA Trading Strategy 4.1 CTA Trend Filter Rules 4.2 CTA Trading Rules for Entries 4.3 CTA Trading Diversification 5 Final Words – CTA Strategy 1 What is CTA Trading? In finance, CTA is an abbreviation for Commodity Trading Advisor. A CTA is a professional money manager or a hedge fund who trade futures contracts, commodities, options and certain foreign exchange instruments in more than 150 global markets. Note* Trading futures and options involve a high risk of losing your investment. Learn more about other tricks used by CTAs here: Hedge Fund Strategies and Tools Used on Wall Street. Basically, in CTA finance, a commodity trading advisor tends to run managed futures strategies with OPM (other people’s money). As you might think in the US, managed futures are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) so you can be sure the CTA fund strategy use strict risk management rules. Now, you might be wondering, what are managed futures? In layman terms, managed futures are a type of unconventional investment approach in which the portfolio is actively managed by professional money managers like CTAs. This also explains what is a CTA fund. CTA trading looks for ways to make money in both up and down markets. So in other to accomplish this, they will implement a multitude of CTA futures trading strategies. 2 Types of CTA Trading Strategies Institutional traders have several CTA trading strategies that can use to thrive in any type of market environment. The two of the most popular CTA investment strategies that can be used by a CTA fund are: Systematic strategies Discretionary strategies These two leading strategies used by the CTA investment funds are largely available to be used by the small investor as well. The difference between systematic and discretionary trading is the following: Systematic CTAs are relying on automated trading strategies and models that use chart pattern recognition signals, trend following signals and technical analysis removing the human intervention Discretionary CTAs are relying on macro data analysis and trades are executed at the discretion of the CTA fund manager Note* There are also CTA commodity trading strategies that focus on niche trading plays like market-neutral strategies or delta-neutral strategies. Now, our team of experts at Trading Strategy Guides will focus on CTA systematic strategies. Why? Well, it’s because when we remove the emotion element from the equation of trading we improve our odds of success. Now of course, if you have a gut feeling that comes from tens of years of trading experience, you can override the trade signals of your CTA strategy at your discretion. No CTA investment strategy is foolproof. 3 How does CTA Trading Strategy work? The mechanisms behind the CTA trading strategy are similar to any other trading strategy. You’ll be surprised to learn that most CTA strategies are based on simple stuff like moving averages, momentum indicators or pattern recognition. They are mostly CTA technical analysis based strategies. However, we can distinguish at least two differences. First… The main ingredient of a CTA investment strategy is contingent on the ability to construct a diversified portfolio. That’s investing in several global markets and trying to capture both bullish and bearish trends. Second… The CTA trading models rely heavily on analyzing a huge amount of price data that encompasses even 100 years worth of data. These two elements are what makes the CTA strategy so much more reliable when it comes to correctly predict the direction of the trend and being profitable. Not all trends are created equal, so by diversifying their portfolios, CTA managers can increase their chance of actually capturing a really big trend. Our team of experts will outline a CTA trading algorithm that can be used without the need of having fancy financial models. You can trade this CTA strategy from any trading platform that offers charting packages. 4 CTA Trading Strategy In this section, we’re going to provide you with a framework to build a trend following model based on price action. We’re also going to provide you with some of the foundations of how the CTA trading strategy works. When you go through the process of building a trend-following model, it’s important to first have a strong foundation. But, the reality is that most trend-following rules attempt to achieve the same results i.e. capturing the trend. Once you grasp that no matter how much you twist the trend following system rules, in the grand scheme, it doesn’t affect the outcome of your trading activities. As we mentioned earlier, the value of the CTA trend trading system comes from diversification. Now, don’t worry if you don’t know any decent trend following system. We’re going to share with you some CTA trading rules that will help you achieve the same results as the top CTA fund managers. A - CTA Trend Filter Rules The trading rules are the least important thing with trend-based systems, however, to maximize gains it’s important to be able to detect trends as early as possible. In this regard, we’re going to reveal two of the most important moving averages used on Wall Street since early 1900. The 50-day moving average in combination with the 100-day moving average is our primary tools to gauge the trend direction. Here are the rules to determine the uptrends and downtrends: We’re in an uptrend if the 50-day moving average is above the 100-day moving average. We’re in a downtrend if the 50-day moving average is below the 100-day moving average. These trend filter rules are quite simple, nothing complicated here. The trend-following rules are designed to keep you with the dominant trend and to reduce the risk of getting whipsawed by the price action. Now, you might be wondering… How do I decide to enter the trend? B - CTA Trading Rules for Entries There are many CTA technical analysis tools that can be used to trigger your entry. However, make no mistake, no matter how much you want to improve on your trade entry, in the long run, it doesn’t matter. In the context of a trend market timing is secondary to things like position sizing. So, to keep things simple… We enter a long position when we break and close above the 100-day moving average. And, vice versa, we enter a short position when we break and close below the 100-day moving average. Don’t be a novice trader and focus all your energy on your entries. But, instead, try to analyze how to diversify your holdings and how much to risk on each trade. This brings us to the next point. C - CTA Trading Diversification Here is the thing… Some trends are stronger than others. Inherently, some stocks can develop stronger trends than others. Secondly, there may be long periods, where the market is flat and no trend is presented. In some instances, when we don’t have a catalyst for trend development, the market can stay trendless for years. At the same time, when the market is not trading we can also have lots of false signals. Now, the key idea is to cover more than just one market and built up a portfolio of trades, the same as in our latest forex basket trading strategy. When you try to catch trends from multiple instruments at the same time you increase your odds of success. Let me explain… Trends come in different forms and shapes. Some trends will last for a very short period of time. Other market trends will reverse on you, right when you enter the market. The idea is that you will incur losses. It’s inevitable. But, with diversification, it will allow you to catch a big trend as well. No one knows what market trends will continue to develop and what market trends are doomed to die unless of course, you have the Holy Grail. So, by diversifying in multiple trends you can take small hits her and there, but if one market emerges with a strong trend you can overcome all your losses and finish the line with a lot of profits. Just for simplicity, we’re going to assume we’ve bought the above three stocks Apple, Facebook and Twitter. All of the three stocks started to emerge into an uptrend, more or less, around the same time. What is the first thing that pops up though your mind studying the 3 stock charts? The trends developed on the Twitter and Facebook chart price were short-lived. So, he took a hit on those two trades. However, with our Apple trade, we were able to recover all of our losses and make a nice profit. That’s the power of CTA diversification in action. Now, what if we told you that the CTA fund managers use position sizing in their favor to further turn the odds of success. What do we mean by that? CTA trend following strategies also uses volatility-based position sizing. The trading principles are simple, allocating different position sizes based on the level of stock volatility: Take larger position sizes for less volatile stocks Take bigger position sizes for higher volatile stocks With this approach theoretically, each trade should have the same impact. Most CTA funds use the Average True Range (ATR) as a proxy measurement of volatility. Final Words – CTA Strategy In summary, CTA trading offers an exciting opportunity for both long and short investors. With the CTA trading strategy, you can achieve a true diversification of your portfolio by spreading the risk across several positions. However, you have to keep in mind that generating positive returns are dependent to your skills to identify good trading signals. Outstanding returns can’t be achieved only through diversification. So, here is a short recap of the CTA strategy: A systematic approach is superior to a discretionary approach Define the uptrend and downtrend combining the 50-day MA and 100-day MA Diversify your portfolio with multiple positions Use volatility-based position sizing to maximize your profits
Editors' picks
NASDAQ:AAPLEducation
by Tradingstrategyguides
20
EYEG Wedge Breakout + MACD CrossPrice consolidating atop the 200 SMA, and recently the 50 SMA. MACD bull cross, and RSI finding strong support on top of the 50 EMA of the RSI convey upside momentum bias (I find the 50 EMA on the 14 RSI to be very informative, I recommend you try it for yourself). I am looking for price to stay supported by 5 day SMA and I will look to buy the wedge breakout to the upside. The $4.80 level that has been local support is also a .786 retracement of the move off the Aug '19 lows to the Dec '19 highs. As usual, try to get in on the post breakout pullback but if volume is strong I'll probably just jump in. Minimum target is $6.50, an area I think is key resistance although the measured target given the size of the wedge is +$8.00.
NASDAQ:EYEGLong
by ETrades1
PLUG 5+ year base, wedge breakout comingPLUG currently consolidating in wedge for approx. 2 months with support found on an up-curling 50 day SMA. Uptrending its way out of a 5+ year basing pattern (this thing seriously looks like a Gold stock), the wedge is located just under major resistance, which is all of the congestion of the 2014 selloff from the highs. Theoretically, PLUG is in the Wave 3 from an impulse wave that began in 2013, with a 1.0 (minimum) extension to +$12, the 1.618 takes you nearly to $20 (ignore date associated with Wave 3 completion) and of course more upside is possible). I I am looking to buy the wedge breakout @ approx. $4.5 and give this one some space and time. Short term target would be range of wedge/channel + breakout level which would put you @ about $5.50, or just below the prior highs, so there is potential for timely profits. -This chart appears to be a perfect mix of a short term opportunity which is in the midst of a very bullish long term trend, hence, a potentially great trade, as this wedge breakout may give way to a substantial move higher within that longer term Wave 3. -You could view this as a massive cup and handle as well. All the same to me. When the rounding bottom is this big, I just call it a base.
NASDAQ:PLUGLong
by ETrades1
1
LRN 50/200 Cross + Wedge BreakoutCurrently trading in an expanding channel/megaphone pattern with a local wedge forming in the gap. I like the $25 - $26 area to initiate a long as that was a prior breakdown and breakout level, and at that price a wedge breakout and MACD cross should have occurred. Additionally, the 50 MA is setting up for a cross of the 200 MA at a very aggressive slope. If you were to examine the 5 and 20 SMA (which are normally part of my analysis but have been removed due to the business of my annotations) you would see they are also setting up in a very bullish manner. RSI holding strong during consolidation and MACD cross appears set to cross tomorrow. Take a moment to look at how the stock has historically respected support/resistance and channels. This setup is very reminiscent of my 'BDSI long' idea which is at the very bottom of my page so I hope you take a look at that and see the similarity and most importantly the resulting success of that setup.
NYSE:LRNLong
by ETrades1
Resistance and SupportThere are two potential profitable positions coming up in the USD/CHF. Firstly, there are two main Resistance levels, both come from prior flag patters, but the upper resistance level is backed further by also coming from the top of strong peaks. This means one would ideally like to buy from one Resistance level to the other, and be expecting a strong selloff at the upmost resistance level. This is backed by the RSI coming to overbought levels and the 50 MA providing support to current the price level. A short position would arise if the price broke a former flag pattern and the 25 MA, but one would expect the price to settle and maybe rebound from a very strong support level dating back a couple of years.
by BlackbearTrader
EURUSD 1H Volume Zone Oscillator Strategy Long TradeInstall Volume Zone Oscillator & 50sma to your chart. Find in Indicator Search (type VZO) - Public Library - GMAN indicator Change levels from 30 to 40 Change 0 level & VZO line to blue colored line If price is above 50sma bullish bias for long trades, below then short trades. How to Use Volume Zone Oscillator? We’re going to reveal how to interpret the volume zone readings. A move above the centerline will give us a bullish reading. And, a move below the centerline will give us a bearish reading. The most important volume zones are "+60", "+40", “0", “-40", and "-60". Additionally, traders also use the “+5”, and “-5” volume zone readings. Here is how to use VZO in your trading decisions. Here are the four main volume zones to keep an eye on: When VZO rises above and maintains the 5% level, it marks the early phase of an uptrend. Conversely, when VZO falls below the -5% level, it marks the early phase of a downtrend. Oscillations between 5% and 40% volume zones mark a bullish trend zone. Conversely, a reading between -5% and -40% volume zones mark a bearish trend zone. An overbought signal is generated when we have a reading above the 40% volume zone. Conversely, an oversold signal is generated when we have a reading below the -40% volume zone. Reading above the 60% volume zone is an extremely overbought reading that can signal a bearish reversal. While a reading below the -60% volume zone is an extremely oversold reading that can signal a bullish reversal. Let’s see what trading tactics we can use with the volume-based indicators. During bullish trends, volume rises with rising prices. The same is true in reverse for bearish trends. This is basic 101 uptrend volume psychology. For this purpose, let’s examine again the EUR/USD chart. We’re in a clear, strong bullish trend. The VZO is above the centerline signaling buying pressure. The volume zone reading between 5% and 40% also indicate a sustained uptrend zone. A buy signal is generated when we cross above the centerline. The EUR/USD chart above demonstrates how during bullish trends, the VZO has the tendency to stay in the higher volume zone fluctuating between 0 and 40. This is a good method to identify the direction of the trend and trade with the trend. Go to our TSG website - then blog - find volume oscillator article for complete strategy instructions.
Long
by Tradingstrategyguides
EURJPY Short TriggeredThis currency pair is featuring for the first time on our TradingView blogs. Current setup: Price is now below major support levels including 200sma, the 50sma and the 120 round number. Conclusion: Price broke out at the start of the week which offered a short entry which we took and have now been triggered into the trade. Any comments or questions, do not hesitate to leave them below. Give us the thumbs up if you share our sentiments! Sublime Trading
Short
by Sublime_Trading
GBPNZD 4H BEARISH BIAS SHORT TRADEPrice at 100 sma so it can bounce bullish or breakout bearish Price has failed twice to hold above 100 sma - Bearish Bias Bearish Bias: Macd Over-bought, Macd below Red signal line 1st Short position - Price closes on 30m candle below 100 sma Price can fall to 50 sma for 1st Short TP - take 1/2 off position and let rest run At 50 sma price can bounce bullish or breakout bearish 2nd Short position - Price closes on 30m candle below 50 sma 2nd Short TP is previous support @ 1.9127 Find your own appropriate SL's
Short
by Tradingstrategyguides