Say if you’ve come up with a technical analysis strategy that consistently works for you, is there any need to be trying out or looking for new strategies?
It just seems like there are thousands of different unique strategies out there.
Chances are you’re always going to have to adapt to changing market conditions - regardless of the underlying ‘fixed’ trading approach that you may have formulated.
The word “adapting” does not mean changing and moving onto other new approaches, it means using your same approach and understanding what parameters it happens to perform on successfully - such as various market cycles & volatility readings.
I can say with certainty that a fixed black and white trading system will not be profitable all the time, and it will wipe out an account given enough time. It has to adapt to underlying market sentiment.
The issue is that Market Sentiment, and understand this fully is totally separate to technical analysis and creating a system. Market Sentiment is an area of study that is not really talked about in great detail, it’s also not an obvious thought process. After many years of trading, learning and developing technical trading systems I now always put Market Sentiment before settling on the variables that will go into a trading system.
To put this in plain English lets imagine your design a Formula 1 racing car, built for racing tracks that are flat, clean and well designed [this is the trading system that you have developed]. The racing car performs well when it’s on the race track, but now the race track changes to an off road dirt track [this is the same as the market]. Now your Formula 1 racing car is not performing so well…
You see, markets change in cycles - so you need to adapt to the various sentiments [or race tracks in the above example]. Have your dirt tires, chassis and suspension ready, you can still keep the underlying engine - just like you can keep using the fundamentals to a well designed trading system. But you need to be ready to change variables when required. This is adaptation in its true sense.
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How often would you say underlying market sentiment changes?
Does this apply to day and swing trading, or just position trading?
There’s no fixed answer to this, and it varies from market to market - this is something which you can’t just be told the answer to, it’s found by researching your specific market of interest. For example look at GBP/USD [my specific area of focus] - in 2008, 2009 and 2010 the average daily range was in excess of 200 pips. Today, the volatility has dropped for over two years and you’re lucky to break 120 pips consistently in a single trading day/session. GBP/USD is also in a long term range, yet back in 2008, 2009 and 2010 it was in a clear trend. 2007 and part of 2008 saw a boom market cycle, late 2008, 2009 and 2010 [and perhaps later] saw a bust period. Today, we’re in a recovery phase.
You really can only find this answer yourself by knowing what variables you will build into your trading system that will allow you to evaluate what specific market sentiment you are focusing on?
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Well, 1st of all, we have to judge any trading strategy by many ways! In this case, long time trading results are meaningful, like 500 and more trades!
To have “found” a strategy is maybe a bit misleading. Think of it more in terms of - you have “chosen” to go with something for a time. Remember there are now and have been thousands and thousands of traders and who knows how many strategies, of which some are better and some are not that great. No strategy is really a secret to anyone, because they have been used and discussed and shown and taught in a great many places, so think of it more along the lines of having decided to follow a set of guidelines/rules for as long as it continues to make money for you in the circumstances in which you trade. So if you in fact have something that’s working anything between 60 and 99% of the time ( lets go with 99% for the sake of argument), then find out what the 1% is that will let you down. Find out what parameters of the strategy start letting you down. Then next I’d say the ensuring that your risk management is as sound as it can be. Then run this strategy on multiple demo accounts with different account sizes and watch your success - or maybe watch where you suddenly start getting failures that you never expected. It doesn’t matter if you are also on a live account - if you have faith in your system - then it should prove itself over any currency pair, any account size and demo or live.
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When you find such a strategy then practice it in demo and make sure it works better than what you anticipated and also don’t rely on only one strategy as the market behaves in many ways.
Thank you RahiFx. This approach can be supportive to see the performance how the strategies work. And can make us carefully in live trading when using our strategies.
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Backtest, forward test, optimize, develop a well defined risk strategy and identify the variables such as what pair, time frame and market conditions render the best results.
Once you are comfortable with your 1st strategy, then you can try developing other strategies for different market conditions to add to your toolbox
Focus first on one strategy, sometime many beginner they like to change with new strategy after one strategy fail and giving loss, actually no perfect trading system and strategy on trading and, if likely any trader already having profitable strategy and work for long run, they can keep use these strategy with enjoyment
No need to looking for another trading strategy if you already have a profitable one! But, you can update your trading strategy, it’s a good practice!
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It’s my pleasure to help and hope you have a good strategy always and keep it as your strong hand.
But dont you agree that certain strategies work best under certain market conditions?
I think developing different strategies for diferent market conditions can be helpful.
Maybe you are right! But, I think updating is important because there is no Holy Grail in Forex.
Yes, there is a need to look for new strategies.
" Once you stop learning, you start dying. " Albert Einstein
I agree that there is a need for constant optimizing and updating and I also agree there is no holy grail to be found.
I think the trader is the holy grail.
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Thank you for understanding!
Yup i totally agree. The trader is the holy grail. A holy grail trader is able to modified rubbish strategy into a profitable one. This is what i believe.
The whole idea of adapting to different market conditions is an interesting one. I see people talk about that kind of thing all the time. In reality, it seems like by the time most people realize the market is sideways, it may be breaking out, and by the time they realize it is trending, it is going sideways. It seems like that things like, support and resistance, volume, and price action never change as tools that can be utilized by a trader. However, there is no doubt that the speed at which a market moves does change. Ultimately, it is incredibly difficult to always know what a market is doing. We can understand certain types of patterns that are the way markets generally behave. For instance, most of the time the market corrects. Sometimes, it doesn’t. Most of the time, the market reverses slowly, going sideways for some time. Sometimes, it V bottoms or tops. You can see that the behavior that happens most of the time is what successful traders tend to focus in on in order to create their strategies. They think in probabilities, and realize that they want to be trading based on behavior that happens most of the time. When the behavior happens that we might call an out liar, or unusual behavior, they realize that they might lose at these times. So, they plan for losses, knowing that the market will not always behave in any kind of rational way that conforms to any system. This is where limited risk and good risk to reward come in. It is ok that they lose, because they put the probabilities in their favor, and they continue to consistently trade their plan. I guess it seems like that, for most traders, trying to adapt to all the market conditions, sometimes constantly changing strategies, is just another way that they can try to figure out some way to not lose in a market where they will inevitably lose.
It is the best way to check that strategy on demo account first and then should apply in the real trading, never rely only on that strategy, you should also have your own good learning ability and strategy for fruitful results.