Layering Your Trading Signals

One of the core features of my trading system is the layering of multiple signals into a single meta-signal. Rather than focus my attention on a few indicators, I decided to use every indicator that crossed my path that showed a positive return in backtesting. I then layered these with every other indicator on my trading menu so that if even if one wasn't firing, another one probably would be.

I'm not a programmer, so all my signals are generated via straightforward Excel functions. The syntax I use to construct my long and short meta-signals is based on the OR and AND functions, with an OR function at the highest level generating the final trading signal when any of the sub-signals have been fired. Here's what just one portion of the code looks like:

=IF(OR(AND(OR(J12=1,L12=1,H12=1,M12=1,N12=1,O12=1,Q12=1),
F12=1,AK12=0,T12=0,S12=0,AN12=0,AO12=0)...

In this long meta-signal, each number/letter combination represents a different sub-signal occupying a particular cell. A "1" represents a long sub-signal that's fired, and a "0" represents a short sub-signal that must be inactive in order for the long meta-signal to be activated. (More about that in my Trading by Process of Elimination post.)

By layering multiple signals into an automated meta-signal, you save yourself the headache of trying to decide which signal to pay attention to, sorting out contradictions between signals, and getting psychologically swamped by a dozen different indicators on your charts. It's a way to squeeze stressful decision-making and discretionary concerns out of the trading process by delegating them to a logical script. This allows you to focus more of your energies on refining that script by combining signals in different ways to achieve optimal results. And for me, that type of analysis has proved to be far more satisfying, and confidence-building, than biting my nails trying to make trading decisions without a consistent, logical process to guide me. It's not a strategy that will work for everyone...especially if you have an aversion to spreadsheets...but without it, my trading career would've ended a long time ago.

Related topics:
Trading by Process of Elimination
Designing a Trading System