"The minute you think you have found the key to trading, I promise you the markets will change the lock." - Linda Bradford RaschkeIt is very easy to think that there is a magic set of parameters which will work best in a chosen market.
The problem is that a certain set of parameters, on a particular timeframe, may work well for a specific period of time, in specific market conditions. But as soon as you dare think "Eureka - this is it!", the markets will change character and those parameters will not work as well.
"We have a saying here: "It is incredible how rich you can get by not being perfect." We are not looking for the optimum method; we are looking for the hardiest method. Anyone can sit down and devise a perfect system for the past." - Larry Hite
A trader is always evolving, in terms of his ideas, beliefs and his method. As an example, you often read about how young 'fearless' traders learn to appreciate the importance of risk control - often after blowing up an account or two, or at the minimum having an emotionally demoralising experience associated with a major drawdown. Even some of the Market Wizards went through this.
Occasionally, a trader moves away from their original ideas and beliefs about how to make money. Again, some of the most successful traders have done this.
"We have a saying here: "It is incredible how rich you can get by not being perfect." We are not looking for the optimum method; we are looking for the hardiest method. Anyone can sit down and devise a perfect system for the past." - Larry Hite
As a trend follower, it is important to acknowledge and accept that individual stocks making up the 'stock market' are in a constant state of change themselves, be it trending or non-trending, and all with differing levels of volatility, as well as the indices themselves, along with foreign exchange, interest rates, commodities etc.
By their very nature trend following systems or methods are relatively simple pieces of coding. Read about some of the most successful trend followers in history, and they have even themselves referred to the fact that their rules could be written on the back of an envelope or the proverbial cigarette packet.
All you are trying to do is identify whether price is trending up, trending down or is stuck in a range. Once you have determined your timeframe, it is pretty simple to see that, and from there you can create your own parameters and rules.
When it comes to trading, I like to think differently. I'm not afraid of being a bit of a heretic when it comes to thinking about the markets. While I adopt and use 'classical' trend following and breakout principles, I also like to think for myself, outside the box.
As an example, lots of traders swear by running backtests and tuning their trading models based on the results of their testing and analysis. Certainly, in some cases with getting to grips with a basic concept, backtesting can be of some use.
