"The Graveyard of Strategies"

Trading Discussion
#1

Hello fellow Babypippers!

I wanted to share this video, issued today, where the Chief Strategist at

DailyFX.com, John Kicklighter, discusses the topic of abandoning a trading strategy, something

that we have all had exposure to, especially at the beginning of our journey as

retail traders and particularly when faced with a string of losing trades, which

is a time when instead of re-evaluating parts of our strategy we may become

disillusioned with it and ditch it wholesale, that is, in its entirety.

Indeed, ‘system hopping’ (my words) is often a cause of unrealised profits, as

a trader adopting this constant change of approach will never truly see a system

through to its potential over time, through negative but also positive periods

and within different market conditions.

A great video, just to reflect on how we approach the issue of the ‘holy grail’:

#2

That is an interesting video, PMH, thanks! :slight_smile:

It emphasises greatly the need to fully understand exactly what our trading strategy is actually designed for. What kind of market movements (trends, ranges, etc), what timeframes (long-term major significant shifts in currency relationships, short-term reactive, speculative movements, etc). If one does not know that then it is not possible to analyse why it is sometimes producing losses - is it a fundamental fault in the strategy itself or just a change in market conditions that the strategy is not designed to function in. Only by knowing this is one able to assess whether to dump it and change to another or modify it. If the strategy is in itself OK and the problem lies in changed market characteristics then the strategy (or elements of it) can be kept and re-used at another time.

For me, this also means that one should thoroughly understand what exactly the component parts of a strategy are and what they are actually telling us, how they are constructed and how they react to various inputs. I think that our modern age creates an environment where newcomers do not want to “waste” time reading and studying the characteristics and nature of indicators, rather they just want the instant “magic” lines and instructions what to do when they cross, bend, diverge, change colour and/or…and so on, without a clue why they are behaving as they are.

But if a trader does not truly understand what they are looking at on their chart then they cannot relate their indicators to what the actual price action behind those lines is actually telling them. A simple example is a short-term MA that continues to slope downwards after a massive single down candle for quite many additional candles even though the price is retracing back upwards.

It is so important to understand the components of one’s strategy in order to read them and not just obey them. Without that understanding it is impossible to assess the quality of the strategy itself when a string of losses occurs and decide what action is necessary. The worst case is precisely what John is saying here about flitting from one strategy to the next, and always changing whenever a series of losses occurs. That way we certainly only gain the best of the worst from every strategy in a long sequence of discarded “failed” models.

Thanks for the video :slight_smile:

#3

Gonna watch it! Thanks.

#4

Excellent points, Manxx, thank you for your contribution!!!