Sunday, March 11, 2012

Hindsight is a wonderful thing

It's been regularly commented on that new and/or inexperienced traders are continually looking for the 'holy grail' method of trading. They believe such a system exists and will continue to look for it. I believe part of this problem is that these traders continually switch from one system to another, having seen trades work out during the course of recent days and weeks. They then go and try and different method(s), only to encounter further losses and frustration when the first few trades don't work out as hoped. What also happens is that, had they stuck with ther original system, in that same period they would have made money! And so the cycle goes on...

How to get around this? Simple - you need to choose one (or maybe more systems), in which you are fully comfortable as to how they operate, identify the market conditions in which they are best suited, AND STICK WITH THEM.

If, after a decent number of trades, there can be some fine tweaking which can improve performance, then and only then should you consider making those changes. But, you need to ensure that those changes do not 'curve fit' your system to the prevailing market conditions in that period. If the market changes its behaviour going forward, will your revised system still work? It is for this reason I haven't made any changes to my basic system parameters for a number of years now. And by being able to identify the current general market state (trending or non-trending, stable or volatile), I can trade accordingly. And, as a trend follower, market direction is an irrelevance, as I can make money both on the long and short side. In short, it is a robust system, one that doesn't need fine tuning, and will generate profits over the long haul.

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