In This Episode
- The Big 3 considerations when picking a new trading system
- How to build a portfolio of trading strategies, the right way
- Why some traders learn strategies that don't make sense
Should You Switch Trading Systems? Here's What to Consider…
Most traders jump from system to system and never find success.
So the question is: When should you stick with your current system, and when should you switch?
In this episode, we show you what to consider, what to avoid, and how to pick your next trading strategy.
Read the Transcript:
Hugh: Hi, Walter. Talking about trading or changing trading systems. So you are at that point where you want to change your trading system, what should you consider?
Walter: If it makes any money. The two big considerations are well I'd say, three actually. Is it related to anything that you're doing right now? In other words, are you just kind of trading almost the same? Will you be taking almost the same trades with adding another trend following system for example.
Number two is, are you going to be able to trade it depending on your lifestyle? For example, if I'm trading the six-hour charts, where I live, I have a problem because I miss the one AM one which is pretty darn good.
That's a one AM candle that prints at one AM that I would miss unless I've got some sort of automation going. Whereas, the eight-hour chart is a little bit different because I can get all three in.
There's sort of considerations around lifestyle. Is it highly correlated with something you're already trading? Can you actually take the trades like it's going to fit in your lifestyle?
The third thing is really what is the goal? What are you trying to do? Is it a variety? Other people — I think we talked about in another episode you know — with ADHD always kind of moving to a new thing. It's exciting but what are you trying to do here?
I think it makes a lot of sense if you're trying to flatten your equity curve so that you have a strategy. If you have a trend following system, and then the one you want to add is a reversion to the mean system; if that's what you're trying to do, that would make a lot of sense to me.
Let's say you trade donchian breakouts. You're a trend follower and then you want to add a bollinger band strategy. Where you have a really wide bollinger band or whatever like a three standard deviation bollinger band.
You wait for the market to make double tops and double bottoms at the edge of the bollinger band or something like that, that would make sense to me. Because, those two strategies are probably going to come out with a super low correlation.
Even if you're trading the same pairs and the same time frames. So that's a ridiculously good idea if you can make it work. So that's what I would basically say. Just those three things. What about you? What are your thoughts on that?
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Hugh: Similar thoughts. It has to match your lifestyle. Early on, I would learn like New York open trades and I wasn't even awake for the New York open. So it didn't make any sense but that's what we do.
We jump on a system that we think looks good or the trader said, “Oh, I made 50 in a month” or whatever and then we just jump on it because we want to make that money. Like you said, what do you want your life to look like?
Do you want to be trading for two hours a day or do you want to be day trading for thirty minutes on the New York open? Build your strategy selection around that instead of jumping on something that's most profitable or has the most trades in a month. So that's what I would say.
Walter: Sometimes we don't actually consciously acknowledge what we're trying to get. Like when you're scrolling the internet looking for the “best system”. You just have to be really aware of the fact that there are some really good strategies out there that work really well for some people but you might not be able to trade it.
Especially the people listening to this, you are most likely to be the type of person that likes to figure things out. So you're not probably going to be the type of person that's going to sign over your account to a signal’s trader like with those social trading platforms or whatever where they hook up your account.
You are the kind of person that wants to know how to trade, That is why you are here most likely. So it's hard for you to let go of that. What that means is finding really great strategies is one thing but you are making sure that they fit with you is another thing. Because you won't trade it unless it really matches up to what you believe.
That is why when they mentioned, I think it was Richard Dennis who was saying about the turtle rules. He said, “Look, we could print the turtle rules…” This is when they were a big secret. They are no longer a secret but when they were a big secret.
“Look, we could print the turtle rules in the Wall Street Journal and a lot of people wouldn't even trade them”. Why is that? It is because some people look at that and go, “No way. I mean, that's not for me. Look at all those false breakouts” or whatever you know that sort of thing.
Meanwhile, you have these turtles that learned it and went on to manage more money than Richard Dennis did. It's just funny to me that people think that it's about finding the hidden treasure. In a lot of ways, it is but it's not. The system isn't the hidden treasure.
Hugh: Exactly. Cool, thanks.
Walter: Thanks.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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