Lewis Borsellino strategy, effective use of technical analysis.
Famous stock market traders such as Lewis Borsellino have left a huge legacy for the next generation of traders in the form of their books.
The books describe in detail the technical techniques that the trader used to achieve his goals.
Lewis Borsellino argues that there are no identical trading days, since they are all different, and as a result, the tools needed for its analysis are completely different.
In this article we will look at the techniques and strategy that Lewis Borsellino used in practice.
Trading Algorithm
It may seem surprising to many, but Lewis Borsellino is an outspoken proponent of technical analysis; moreover, he was one of the first intraday traders to trade in the so-called “Pit” of the stock exchange.
1. Trend identification
The key rule for any trader practicing technical analysis is to open positions only in the direction of the trend.
To determine this, Lewis Borsellino used several trading tools.
The first and simplest tool is trend lines. It's worth noting that Borsellino drew these lines almost arbitrarily, sometimes even intersecting the price itself. However, this allowed him to visualize price movement and accurately identify the current trend.
The second favorite tool for determining the trend was simple moving averages with periods of 200, 50 and 20.
First, he looked closely at the position of the moving averages relative to each other, thus assessing the current trend, both global and medium-term.
Secondly, he paid attention to the angle of inclination and the degree of distance of the price from the moving average.
So, if the price has moved a significant distance away from the moving average, the trend will most likely continue, since players simply do not have the strength to make such a strong effort to reverse it.
2. Trading with moving averages
Lewis Borsellino wrote in his book that there are no wrong or bad moving averages, namely, there are no universal periods that can be used on any assets.
The market is volatile, so he selected a moving average period for each futures contract and time frame based on history. However, in contrast to the objectives, he used three moving averages with periods of 200, 50, and 20.
So, if he needed a long-term buy-and-hold signal, he used a 200-period moving average; if he was interested in medium-term trades, he used a 50-period moving average; and if he was interested in scalping, he used a 10-period moving average
. Regarding signals, when trading moving averages, he paid attention to rebounds from these lines, as well as price breakouts. However, the strongest signal Lewis considered was based on a price deviation from the moving average.
If the price deviates by 6 percent or more from the average price, the likelihood of a pullback increases, which he successfully exploited.
3. Trading Reversal Patterns.
Although Lewis Borsellino primarily used only moving averages and traded strictly with the trend, he did not miss the opportunity to trade reversal patterns in graphical analysis .
His favorite patterns were the double bottom and double top, as well as the so-called V-shaped wedge.
It's worth noting that all of the above techniques used by Borsellino would not have been successful if he hadn't strictly adhered to money management rules.
Borsellino believed that only psychologically prepared traders who can calmly cut losses while simultaneously allowing profits to run can achieve success in stock trading.
Read also:
Lewis Borsellino's 10 Commandments - http://time-forex.com/treyder/10-zapovedey
Trader's biography - http://time-forex.com/treyder/luis-borselino
