Professional Trading Strategies (Rules, Setup, Backtest, Example Analysis)

Professional traders have their unique ways of trading, but one thing that is common among them is that they do not follow the crowd. They follow their specific trading plans and use their own strategies. But what are professional trading strategies?

Professional traders use the normal indicators, price action patterns, and strategies that are available to most traders. The only difference is that professional traders know the ones that work and how to use them well. Unlike retail traders who dabble with different strategies they never know work or not, professional traders only employ strategies they have confirmed through backtesting to have an edge in the market and then execute them in the right way and at the right time. Professional traders know what they do and why.

In this post, we take a look at professional trading strategies. At the end of the article, we make some backtests.

Related reading: – Looking for examples of free trading systems? (We have hundreds)

What strategies do professional traders use?

Although retail traders often think that professional traders use complex strategies to trade the markets profitably, that is not the case at all. Professional traders use the normal indicators, price action patterns, and strategies that are available to most traders. The only difference is that professional traders know the ones that work and how to use them well,and they are looking for simplicity:

Professional traders only employ strategies they have confirmed to have an edge in the market they are trading and execute them in the right way and at the right time. This is unlike retail traders who dabble with different strategies without first knowing whether they work or not.

Whether a strategy is based on a simple indicator like the RSI or a complex price action pattern, the essence of any strategy that would make money is its edge. This is why professional traders take a lot of time and effort searching for an edge. If there is any unique thing professional traders do that makes them money, it is their use of only strategies with an edge.

But how do they find that edge? The obvious answer is through research and testing. They research the market to find inefficiencies, which they convert to trading ideas. Some of the tools they use for their research are academic publications in financial journals, studying the price charts for repetitive patterns, and tweaking existing indicators or strategies.

When they find a useful idea, they formulate different trading rules for it and backtest them on past price data. If the strategy performs well on historical price data, they go ahead and forward-test it on current market data to see if works as well in current market conditions. It is only when they have confirmed that the strategy can make money that they use it to trade on their real account.

With the knowledge that their strategy has an edge, a professional trader has the confidence to execute the strategy even when they are experiencing a drawdown, knowing that in the long run, the strategy would make money. Trading, then, becomes a game of odds. The trader knows that there is no way of knowing which particular trade would be a winner or a loser but after a series of many trades, the odds play out and there would be more winners than losses or more money made on winners than the money lost on users.

Thus, with a verified edge in the market and understanding that trading is all about the odds playing out over a series of trades, the professional trader’s game becomes about risk management — using the right position size and maintaining a certain account risk that offer them