Friday, July 07, 2006

No system works forever

Ever thought about, what this statement means?

First it means, that as long as your system works, you don't change it. Very simple. And you don't change it, just because you have had a few losses in a row. That is to be expected. It's how you handle them, which decides your overall performance. And it's not the system's fault, if you add to your losing trades, if you blow your stop and move it further down and further down, because you switch timeframes from 3min to 10min to 60min to daily.
Learn to recognise a failed trade and move on.

But it also means, you need to recognise, when your system no longer works.
How do you differentiate between a losing streak and a major shift in market currents causing your system to lose it's edge.
By doing some homework!

If your system is applicable to different markets, not just the one you are mainly trading, it's easier.
Take the time and identify your trading setups on different markets. See, if they work or not. If your signals start failing in multiple markets it might be time to reduce size or start trading Demo for a week or two to see, if it's just a temporary occurrence or if your system is starting to go through a drawdown period, where it just no longer has the edge you rely on.

The earlier you recognise this, the better for your overall performance.

We all have to go to the drawing board again and again, as the markets change and we have to change with them or we will perish.

2 comments:

David_UK said...

Hi croc,

Yet another interesting and thought provoking post of yours!

Isn't it interesting though that Ingo and good old Anticc manage to know when to add to 'losing' trades and still manage to come up trumps!

Have a nice weekend.

david-uk

Anonymous said...

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