How to Use Average Number of Bars in Trades to Your TradingWhen testing our trading strategy, we often analyze the average number of bars in trades, including both winning and losing trades. For instance, let's assume the average number of bars in trades is 31, with winning trades averaging 78 bars and losing trades averaging 16 bars.
1. Short-Term Profits During Losing Trades: Our strategy should focus on short-term profits during losing trades, which average 16 bars. Implementing a scalping strategy can help hedge our positions and minimize losses. We can offset some of the losses incurred during these periods by taking advantage of small price movements.
2. Partial Profits to Reduce Risk: If our holding periods exceed the average of 16 bars, we plan to take partial profits to reduce our risk. Specifically, we aim to take 2/3 of our profits once the holding period surpasses 16 bars. This approach helps lock in gains and protect our capital from potential market reversals.
3. Exiting Remaining Positions: For the remaining positions, we plan to take profits when the holding period exceeds 31 bars. The exit strategy could be based on the next resistance or support levels, or it could involve using a trailing stop, such as the parabolic SAR. This allows us to capture additional gains while still protecting our profits.
4. Extending the Position When There is a Signal in a Higher Time Frame: When we have taken a position in a trading time frame, we plan to take profit targets at predetermined levels. However, if there is a signal in a higher time frame, we can apply those holding periods and adjust our profit targets accordingly. This approach allows us to capitalize on longer-term trends and potentially increase our overall profitability.
By incorporating the average number of bars in trades into our strategy, we can make more informed decisions and optimize our trading performance.
