How can you tell if your trading strategy is no longer effective?
Trading strategies do and will stop working over time. There are several factors that can lead to this such as market conditions, volatility, volume and even market conditions that strategy was tested in. Trading strategies do not last forever and whether you developed your own strategy or bought it you already know that it requires time and patience as well as discipline to give them a real chance.
Here are some signs to check over time to understand if your trading strategy has stopped working:
You can’t follow the trading rules
In order to make or break the trading system you don’t need to do much. It only takes one or two trades. If you do not consistently use a trading strategy you can’t assess its profitability. If you believe your system is too precise, ambiguous or challenging for you make the appropriate adjustments or get rid of it entirely.
Your strategy needs more effort
If you need to be awake 24/7 for your strategy then it is probably time to look at other choices if you don’t feel comfortable utilizing your system consistently for longer periods of time or if you believe that you would make roughly the same number of pips without it.
Your are spending more than you earn
ALERT! For those who choose to buy their strategies. Although not all of those on the market are fraud strategies, you will probably choose an overrated one. It’s time to take the plunge if your monthly signal provider offers you more disclaimers and entry and exit options than earnings.
Similar to this, you should consider alternative methods if your own trading strategy requires expensive subscription fees in order for you to be profitable.
It is not profitable
If you run your own tests and adjusted all of the parameters that could be modified without seeing any gains then it is obvious that it is time to abandon your trading strategy. If a strategy works for a trader doesn’t mean that it will work for you. It takes time and effort and even luck before you find a profitable one that also fits your trading personality.
Keep Yourself Safe From A Failing Trading Strategy
Traders are always going to end up in a failing strategy at some point.
Journal Your Trades
It is a good way to keep a journal by writing down your trades in order to be aware of what is actually working or not. If you are not aware of what is happening then it is easy to start going down.
Follow Multiple Trading Strategies
Never put all your eggs in one basket when it comes to trading. In fact if you have 2 or more strategies your risk of loosing all from one trading strategy is greatly decreased. Make sure you are using different indicators and different ideas to keep the trading strategies as separated as possible.
Follow Different Strategies for Different Market Conditions
It is useful if you able to use different strategies in a trending market compared to a ranging market. Although it takes long time to master different trading strategies and recognize market conditions. The reason traders lose money is because they follow a trading strategy that works within a trending market.
To sum up, a trading strategy will stop working at some point. The only way to risk your capital and not loosing all of your money is to trade multiple trading strategies and keep the risk low.