Several years ago, my daughters gave me a t-shirt for Christmas that they knew I’d like.
And it always comes to mind when I think about this concept.
The shirt said: “There are 10 types of people in the world, those who understand binary and those who don’t.”
(I wore that shirt until it was threadbare.)
Think about all the filters/columns you could consider using in a trading strategy.
There are perhaps hundreds that you could use.
It can be completely overwhelming – where do you even start?
I’ve found that the most useful way to think about filters is to classify them in one of two buckets.
- Filters where the values change during the day
- Filters where the values don’t change during the day
Why is that important?
Go back to the backtesting puzzle I shared a few days ago.
If you use filters that don’t change during the day, you avoid the conundrum outlined in that post.
You simplify the problem of creating a profitable trading strategy dramatically.
It’s not always possible to exclusively use filters that stay constant during the day, but I always start with those because it reduces complexity.
Tomorrow I’ll share some specific examples of my favorite filters.
-Dave
