I know this 3-part series could be a bit “harsh” or unusual for you.
But there’s a reason why I used a “tougher” approach…
To help open traders eyes.
To help you clearly see the dangerous parts of trading, that many traders seem to ignore again and again.
The first danger was “Living in the dreamland of backtesting equity curves”. That was a huge one.
That was perhaps even bigger (yet, many still keep denying it).
Today, I’m going to talk about the last one. Which is:
#3: Betting on a “perfect” strategy.
At the beginning of my trading career I used to believe that all I need to become a full-time trader and make a stable income, was one “perfect” strategy.
A strong, logical, timeless edge.
An edge so powerful that I could apply it in many markets (thus increase my trading frequency and get diversified at the same time).
And I still remember, that many years ago (probably more than a decade), I considered that “perfect” strategy to be the Larry Williams’ “OOPS pattern”.
It looked logical. Easy to implement. The backtests looked promising. And it worked in so many markets! (I still remember how a friend of mine helped me to test it on hundreds of different stocks using special software).
So, I believed if I only used this one trading strategy, but in many different markets, it would be all I needed.
But guess what:
I lost money.
The edge simply seemed to stop working. (Probably after Larry’s book, which revealed this pattern, became a bestseller and was followed by tens of thousand traders. This is exactly what I talked about in the previous post, called “Following and consuming all the obsolete, publicly available trading ideas – and ignoring everything ‘unknown’”.
But I didn’t want to abandon my idea and pursuit of that “one perfect strategy”.
So, I started developing my own trading strategies.
Until I developed several, and then picked one, which seemed to work on many futures markets.
But guess what.
A bigger than historical drawdown came in the first 3 months.
So, I lost money again. (Also, I need to emphasise that at that time, I didn’t have my tough robustness testing procedures yet, which makes all the difference now.)
Now, do you think I got “educated” enough after two trials?
Of course, I still believed in the idea of “one perfect strategy”.
So, I kept going like that a few more times. I had to lose my money a few more times. I had to get my confidence shaken a few more times, until…
I finally had to learn and accept that:
A “perfect” trading strategy doesn’t exist. Period.
The truth is, that:
|1.||Trading strategies DO fail. That is the harsh truth of our business. And you can NEVER tell in advance.|
|2.||And if you bet on just ONE “perfect” trading strategy, you’re potentially in a lot of trouble. Why? Because once the edge starts fading out, it usually happens on all the markets you’re trading it.|
So, if you don’t want to risk losing your money really fast…
…stop betting on one (or even two) “perfect” strategies.
Instead, do the following:
|1.||Create more truly INDEPENDENT strategies. That means different strategies in different markets with different logic. Because if you trade 5 INDEPENDENT strategies (instead of one “perfect” strategy on 5 markets), you’re much safer. When one of the strategies stops working, nothing major will really happen. The remaining 4 strategies will “hold you”. And you’ll probably survive quite easily.|
|2.||Have immediate replacements at your disposal. If you bet on one “perfect” strategy and it fails, you have nothing. But if you use a few INDEPENDENT strategies, and one of them fails, and you’ve already prepared a few replacements in advanced – BINGO. You stay in the game. And with really high confidence, you know that whenever a sign of weakness comes to any of your strategies – there’s no real stress. It is only one strategy from many. And you’re ready. You can replace it easily, without any emotional attachment (which is very hard to do with a strategy you consider to be the “perfect” one).|
Fortunately, to create a lot of INDEPENDENT, great trading strategies is not that hard.
Just watch the FREE 14-day breakout trading strategy challenge and see for yourself.
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