What Is A Good Trading Strategy For 2024? (What To Look For In Strategies)

What is a good trading strategy?

A good trading strategy is simple and has few parameters, is not curve fitted, has a rising equity curve, has a profit factor above 2, and has passed out of sample testing.

Thus, a good trading strategy is not necessarily a strategy that gives you a high CAGR, returns, or high gains per trade. Even a “mediocre” trading strategy might serve a useful purpose in a portfolio of trading strategies.

By diversifying into different time frames, assets, and market directions you get closer to the holy grain in trading. A good trading strategy might not be particularly good on its own, but fill a purpose in a portfolio of different trading strategies because of its correlation attributes.

Table of contents:

First, there is no perfect trading strategy:

The first thing you need to understand is that the perfect strategy doesn’t exist. Many keep looking for the perfect indicator or the perfect setup, or they keep fiddling with one or just a few strategies to improve them.

They will ultimately be disappointed, or they end up with a curve-fitted strategy that doesn’t live up to live trading expectations.

The perfect strategy doesn’t exist and a good strategy is neither perfect nor profitable at all times. A good trading strategy complements your other strategies:

This article briefly discusses what we consider the main elements of a good strategy and how you should go about with your trading.

What are trading strategy parameters?

Trading strategy parameters are variables or inputs that traders use to define and customize their trading strategies. These parameters can include factors such as entry and exit points, stop-loss and take-profit levels, position sizing, risk tolerance, and indicators used for analysis. By adjusting these parameters, traders can adapt their strategies to different market conditions and optimize their trading approach for better performance.

Why do strategies stop working?

First, a party spoiler:

The reality is that strategies stop working, and you constantly need to fill in with new strategies.

Why do strategies stop working? They stop working for a variety of reasons, for example:

Curve fitting. Your strategies might be too complex and have too many variables. This often results in curve-fitted strategies that are unlikely to perform well on future data.
Markets inevitably change and evolve. An example could be the immense growth in data power that makes the market more efficient and probably also more short-term.
Markets go in cycles.
The market is immensely competitive. In 2020 hedge finds spent almost two billion on alternative data to gain an information edge over the market. Even cheap computers can run a lot of data and optimizations. Just a decade ago, this was not possible.

The solution is to trade many markets, different types of strategies (mean reversion, momentum, trend-following, etc.), different time frames, and perhaps different position sizes.

A general piece of advice:

Many opt to either focus on one strategy or