The Best Way to Use Our Indicators
I often get asked by traders what is the best way to use a particular indicator. This is what I tell them:
The answer is... there isn't one right answer. There is no one-size-fits-all trading strategy for any of our indicators. There are a lot of factors that go into developing a trading strategy, and it is all based on your personal risk tolerance and preferences.
Many of our indicators give entry signals, but you can also use a combination of other filters or indicators as confirmation for entry. Once you get your entry signal, you then have the choice of entering all at once or scaling into the trade. And after you enter a trade, there are even more options for how you manage the trade. For example, targets, stops, trailing stops, exits based on price action or indicators, time stops, multiple lots, etc.
All of these factors will differ depending on the time frame and market traded. Stocks behave differently than commodity futures, which behave differently than forex. Every market and time frame has different characteristics, and will require different risk management practices.
Because of all these factors, it is usually a good idea to backtest a trading strategy before trading it live. This will allow you to see what works and what doesn't, and even let you optimize the input parameters. If done right, backtesting gives you the opportunity to figure out a strategy that works in your chosen market with your particular set of indicators, given your particular risk tolerance and risk management practices.
While I prefer TradeStation for backtesting, Thinkorswim does offer some basic backtesting capabilities that make it useful for quickly determining whether a strategy is viable or not. If you need help setting up a backtest in either Thinkorswim or TradeStation, feel free to contact us to make a request.