The risk of trading one profitable strategy

[ProfesorPips]

Hi so why is it very risky?
The average trader tests strategies a year or two back, depending on the data they have, and installs them immediately on a real account after accepting the result without verification, even on a demo account.
Below is the USDCHF daily chart from November 2015.

Many new traders started their adventure with the market during the crisis in 2020. Basically, it was the time of the bear and sideways market. If a trader has used the last two years for a test, he does not know how his strategy will behave in a bull market. The last year is also a time of high volatility and a downward trend, and we do not know when the trend will reverse and what the volatility will be during this time.

So, will you be able to adapt to the new conditions as a discretionary trader?

Or when trading one auto strategy that loses profitability due to high volatility, can you afford to have your trading downtime while you develop a new strategy?

And the worst that can happen, a sharp move with no liquidity like during the 2015 crisis.
Your one profitable strategy could have brought you a huge loss

If trading is your hobby, and you trade from time to time, one strategy is more than enough.

If you want to make money long-term, diversifying your risk across multiple strategies is essential

Profitable trading is boring, predictable and structured.

[tommor]

Good down to earth essential knowledge.

The most frightening thing I’ve ever heard in trading was when I recently watched a Youtube clip by a skilled trader who regularly backtests over 12 or 13 years’ time periods - he openly said that some profitable and well known strategies in the public domain work well for years on a given pair and then stop making money. And he showed this to be true. And he has no idea why. Nor me.

[ayodimej1]

I think it’s because most traders focused more on backtesting when adopting a strategy than forwardtesting. The world is changing rapidly and conforming to recent events.
We’ve seen the market reacts to wars in time past like WW1&2, but right now this ain’t WW but Ukraine-Russia wars, how are my strategy reacting to this data in respect to old datas…

[ProfesorPips]

@ayodimej1

I think it’s because most traders focused more on backtesting when adopting a strategy than forwardtesting.

forward testing? what do you want to test if you don’t have any future data?

@ayodimej1

The world is changing rapidly and conforming to recent events.
We’ve seen the market reacts to wars in time past like WW1&2, but right now this ain’t WW but Ukraine-Russia wars, how are my strategy reacting to this data in respect to old datas…

how do you want to compare data from 40’ and current data? It is like compare newborn child to mature.

[PrestonRiver]

@ProfesorPips

If trading is your hobby, and you trade from time to time, one strategy is more than enough.

If you want to make money long-term, diversifying your risk across multiple strategies is essential

Could you please clarify this part? I always heard and suggested people follow one good strategy!
It seems a little innovative to me.
I can’t call myself a full-time trader but trading is not really a hobby for me! I worked and personalized a strategy for myself, and now I see that I have to add new ones?!!

[chesterjohn]

There’s several strategies that I’ve backtested that are profitable or only enter trades in certain market conditions. Having strategies that work well in ranging markets, trending markets, volatile markets, bull markets, bear markets etc allows you to take profitable trades in any scenario. Of course the key is identifying when the market changes from one to another

[ProfesorPips]

Probably, you have heard a quote, " don’t put all eggs in one basket ". To translate to FX market, imagine that eggs are your funds in a broker account, if you are putted all eggs ( funds ) to one strategy ( strategy is your basket ) if something goes wrong you will stay with nothing.
As like @chesterjohn said, if you are use many strategies, your eggs are in different baskets, so your risk is diversified.

[chesterjohn]

Here’s a great example of one of my strategies. It is a breakout system. In a trending market is does 75% increase on the account in 2 years. Then the next 2 years in gives back most of the profits as the market changes more into a range.

[PrestonRiver]

Well! Thank you.
Yes, I thought it was about not putting all of my balance in a trade, so I would trade with 2% of my balance or sth like that, this point of view is a new one!
Seems like I have to develop new trading system(s) as well!

[ProfesorPips]

build new strategies, correlations, account capitalization and so on, it is couple “things” you should calculate