A question for more senior members i guess, but how often are you guys ( if ever ) going through a process of having the effectiveness of a technical trading plan begin to fail, developing a new one, testing it, then implementing it.
I, like a lot of other newbs, have been reading through the threads of, for example, the cowabunga system. It’s had fairly solid returns for a while now, but do you find that system like that runs out of steam? Or do trade plans follow more of an evolutionary pattern, looking at plans like Ingot’s Rainbow that have evolved to become more honed from previous systems, ( Not to take away from the further work of Ingot, cosgrove e.t.c, they’ve put a massive amount of work into it ).
I understand that the markets are in a constant state of flux, but will simple, yet profitable system last more than say, 5 years?
Very good question and probably depends how your system is developed. The more it relies on indicators the shorter life I would guess it to have (though I cant prove this). Price action is always repetitive and with this as your base (as it is in my case) I believe things to be evolutionary. Cowabunga is in my view a very good system and is relatively simple. SInce it is based on trend recognition and has few indicators other than price action one would anticipate it would last for as long as there are trends. The simpler it is the longer the longevity I suspect although again I cant prove this. In my early days I traded systems that seemed to work quite well for periods of time (certainly longer than a year) which eventually failed completely so this is always a risk. Thats one reason why you must know when your system begins to behave outside of acceptable parameters so you can review it
I believe a solid plan with good money mngmt should be able to follow the trend no matter what market…Its all about analysis,execution and management. Now of course if your plan is flawed you will need to get back in the kitchen,so it can evolve over time or maybe not! It all depends on the trader and system
For sure. Approaches will tend to work better in particular markets but it is not always that clear when you are moving from one phase to another. Right now though I think it would be hard not to notice that GU, GY and EY are all in pretty dramatic trending moves down and UC looks good and ready to turn back down unless 1.0200 holds at this point. You would need different approaches. For the first 3 you would be looking to sell retracements, for the last looking for the resistance level to hold or be decisively broken and retested as support from the upside. Not rocket science but you do need a bag of tricks to help you join these moves and they may well differ
I think some of the best systems have rules that prevent the system from entering the market at times in which it will not perform well. For example, a system that is intended to trade the trend could have a built-in rule or indicator that keeps you from trading a rangebound market.
I think if you are worried about a system not peforming in different market conditions, you could try it on representative pairs for long-term appreciation, long-term depreciation, and pairs that are all over the place. Or you could make a rule that forces you to check the overall trend, that’s one of the best things to include in your system. This is of course, 2nd choice to testing your system on the same pair under different conditions, but sometimes it’s hard to access 30min charts from 6 years ago, when the market trend of the pair was different.
The other factor might be volatility, but overall I think that’s more-or-less predictable based on the day, or time, or season. Keep up on the fundamental side of things to get a good overall picture of the market, even if you are trading shorter timeframes. Things like interest rate statements are very important for long-term trends.
Go back 30 years, you’ll find the same principles of trends, support and resistance, overbought/oversold conditions, etc. If you focus on these aspects primarily, I think your system will stand the test of time. Of course a little tweaking to maximize profits never hurt anybody, but in terms of outright failure, I think that is more of a problem of straying from these crude market characteristics than of the market characteristics straying from you.
One thing I want to do at this point in the discussion is differentiate between Trading Plan and Trading System as the two terms seem to be getting used a bit interchangably here. A trading system is the set of rules used to determine entry and exit. You trading plan includes your trading system, but also the whole rest of your trading process, including risk management, timing of when you trade, etc. Part of your trading plan should be assessing the ongoing performance of your trading system.