I am told that I need to find a trading strategy and risk management plan and trading plan that is profitable and stick to it like glue and I should learn to ignore my emotions and follow my plan and strategy like a robot and a trader is successful when he/she can keep doing the same thing over and over again. However you are also told that you need to be flexible in order to succeed in an ever changing market.
These two statements directly contrast eachother and I am very confused. How can I stick to something like glue regardless of anything else but also be flexible with it?
In its most simple form, you could have one strategy for a ranging market and another for a trending market.
Each with its own set of rules that you stick to.
This is a very interesting topic, and there are several ways to square the circle. I have a friend who is a pro trader, managing a Forex business on behalf of a couple of hedge funds and private clients. His set up is based in Wall Street using the same servers as Goldman Sachs uses. They are expensive, but that’s his trading edge - to be at the front of the queue for any market order execution.
He tells me he has designed six different algorithm strategies for specific market conditions, which is both flexible and based on specific rules per strategy.
Which is what Carlos explained. In other words, if you’re following a profitable strategy, keep to your rules while it remains profitable, but be ready to change your strategy if market conditions also change.
Today’s market climate produces conditions that are very volatile and price action follows market sentiment from pillar to post - because the global economies are far from stable, especially as the USA is in disputed Presidential transit, UK and Europe are in unresolved Brexit negotiations, and Covid 19 is causing economic ruin from untold deaths, job losses, and business failures.
It has tested my bulletproof trending system, and being flexible in responding to change, I have upped my intraday trading window to the slower 4hr chart, instead of 1 hr. Maybe, I’ll also have to design a contrarian strategy as well.
Would you suggest having criteria that should the criteria be met you change what type of strategy you use. For example, you could use your strategy that catches trends when ADX is >50?
I believe you can have one strategy and succeed as long as you follow the rules. With regards to being flexible i think you need to see what type of market it is and whether your strategy is right for it at that time if not stay out
That’s a good mental approach. Just be aware that chopping and changing strategies is risky and you could find that nothing works, unless you have learnt how/when/why the market moves. .
Even if your criteria is met, I would take it easy - one step at a time on an experimental demo account. It has taken me six months to put together a strategy that is sound, with rules that are rigid, but it only works well in a trending market. And there is still room for improvement.
But having fewer trending trade opportunities gives me time and space to learn how to trade successfully in a ranging market, which is my next challenge.
Just remember, keep doing more of what works and less of what doesn’t.
That would depend on your level of ability and experience. Personally, I can see by looking at a chart in a long time frame but someone else might prefer using an indicator to help, such as a moving average.
I echo the opinion that adaptability is more a characteristic of the plan than of the trader.
A simple example for a plan that trades RSI divergences might look something like this:
Trade divergences at floor/ceiling of a range, target range center
Trade pullbacks of a trend if hidden divergence forms, trail a stop to ride the trend
Trade a reversal if bearish divergence occurs in an up trend, RSI indicates overbought, price is at a strong area of resistance, and price breaks through trend line support (invert for down trend)
Then there’s refining the plan through lessons learned and adapting the plan to other markets, like derivatives. (e.g., How do you choose an appropriate strike price and expiration? Do you trade ATM, ITM, or OTM? Use multiple legs or only single directional options? Do you let it expire or close at a predetermined target price?)
As you can see, even a trading plan with only a single technique can be adapted to many scenarios.
(P.S. I have no idea why the reply was directed at @ponponwei instead of @Buried.Man.)
