Types of trading systems - Trend-following systems

This is the most common and most commonly used type of system. Trend-following systems all aim to catch big waves once a trend has formed, and try to profit from most of them.

A typical way to enter is to buy when the price breaks the previous high during an uptrend; or sell when the price breaks the previous bottom in a downtrend, expecting the price to continue the current trend. This strategy is the complete opposite of traders who like to catch the bottom, but that is the biggest advantage of the following trader trends.

The strength of trend-following systems is that if you catch trends, you can create big winning trades, so it is not necessary to have a win rate too high to make a profit.

However, this type of system will suffer a series of losses when the market accumulates or goes sideways, and unfortunately, the market will go sideways 70-80% of the time. Meaning that the winning orders may not be many, but in return, they will be large.

To be a trend trader, you must accept a not high win rate level and have to gong for a long time to have big winning orders.

Types of trading systems - A regression system on mean reversion.

These systems are based on a theory called the mean regression theory.

This theory suggests that the market spends most of its time moving sideways accumulating around an average price, and when the market exceeds that average, it tends to regress to the average, or "mean".

This type of system looks for potential reversal points (highs low) when the price is stretched beyond normal and will take profits when the price returns to the average. This means that the winning orders will be smaller and there will be more wins.

The indicators indicating the status of market overbought / oversold often appear in these systems: RSI, Stochastic, ADX, MACD - for sell signals when the market is overbought, and for signals to buy when the market is oversold. Also should combine with other tools to have a higher win-rate.

Types of trading systems - A system of short surfing on low frames

This is the other, possibly one of the two above but is used on low timeframes for short surfing. These traders are called scalpers.

The scalpers will come in quickly, take profits early and enter many orders of the day. Along with that is a higher level of stress.