Module 3, Lesson 1
Introduction to Market strength DPS techniques
Tomas: Welcome to Module 3 - module of the Dynamic Position Sizing programme - and in
this module, we are going to talk about market strength Dynamic Position Sizing
techniques.
Okay, so let's get to it.
First, disclaimer as usual and, okay, let's talk about Dynamic Position Sizing tech-
niques based on market strength.
So, one of the greatest, most universal, and reliable independent input is volume.
Volume, unless you have used it directly in your trading strategy, is an independent
input, and it shows us, pretty well and reliably, market strength. If volume is flowing
into the markets, then the markets, of course, are gaining strength; and if volume is
flowing out of the markets, then logically, we are losing strength in the markets.
So the probability of trading signal success can often fluctuate according to the vol-
ume strength.
Again, it's very logical. It's pretty easy to understand why this volume dependent
logic works, and we have different probabilities based on different volumes.
So entries during high volume markets have a different probability of success than
during low volume, where we have no flow of traders. That means no power, and no
momentum and movement.
So again, very easy to explain why we have different probabilities with no power -
that means no momentum, no volume; and high volume, that means real power in
markets from traders.
And for reasons like this, volume can be really a great independent input to Dynamic
Position Sizing, and you will see at the end of this module that the impact can be,
again, quite significant. We can definitely improve our net profit/drawdown ratio by
a huge, huge amount.
You'll see, and you'll be surprised how much.
Page 1 of 2
(c) 2018 [Link] / Distribution without author´s approval is not permitted.
TRADING INVOLVES A SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS,
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
So in this module we will work with four different volume-based or market strength-
based techniques, and, together with this module, you have indicator again, and you
have a few codes - again:
• Dynamic Position Sizing testing strategy
• Optimization code, and
• Result code.
Alright, so I think there's no need for further explanation and let's go directly to
TradeStation and let's see what I'm talking about right there.
Page 2 of 2
(c) 2018 [Link] / Distribution without author´s approval is not permitted.
TRADING INVOLVES A SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS,
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS