My usual trading system continues to fail, what should I do? I believe that the vast majority of traders will have such experiences and troubles. Obviously, their trading system was very useful a while ago, but suddenly it failed at a certain stage. Even if they completely follow the discipline and rules, they still lose money no matter what they do. , in this case, should you continue to believe in your trading system, or start optimizing the system to avoid further losses?
This question is very typical and very important. Today I will share my views and understanding.
1. Distinguish whether it is a normal loss or a system failure
It is impossible for any trading system to achieve a 100% winning rate, and any system will suffer losses during the trading process. Today we are discussing "what to do if the trading system fails", the premise is that the trading system fails. It is very important to make an accurate judgment that your trading system is malfunctioning.
Don't arbitrarily think that your trading system is out of order just because of one or two normal losses, and don't insist on using it even when the continuous losses have actually failed because you firmly believe that your system will not fail.
2. Why the system fails
Many traders have experienced the failure of their own trading systems. There is no inevitable failure of a trading system, but there are indeed many trading systems that have made very good profits for a period of time, but then fell into failure and formed continuous loss. So why do some trading systems fail? There are two main reasons:
One is that the conditions for the formation of a failed trading system are very narrow. The market operating environment is different at different times. Sometimes it is strong and unilateral, sometimes it fluctuates upward or downward, sometimes it fluctuates in a wide range, and sometimes it fluctuates within a narrow range. At least start the offensive again. The formation conditions of trading systems that may fail are often narrow and one-sided. For example, the market environment of some systems is a narrow range of shocks. When the market is in a narrow range of volatility, it will be very good to use, and the profit will be quite high, but once the market environment becomes a wide range of volatility or a unilateral trend, it will fail and cause continuous losses.
The second is that the malfunctioning trading system does not have a strong defense mechanism. An effective trading system must take into account both the ability to profit from attacks and the ability to defend against sharp retracements. A malfunctioning trading system means that when the system does not match the market environment, it still does not issue defensive warnings, but continues to open positions. In this way, there will be continuous losses, which will make the trading results mess up.
3. What should I do if the trading system fails?
What should you do when you judge that your trading system has failed? This is a common pain point. Do you choose to continue using it? Or ditch the system altogether? Or to adjust parameters and optimize the system?
The above three options may be the way out but may also be a fatal mistake. As for how to choose, I think the key point is that you have to figure out whether the logic of your original trading system is correct.
Whether the logic of the original trading system is correct refers to judging that the underlying concepts and thinking of your trading system meet the requirements of stable profitability. Let me give you an example for your understanding.
For example, my high-probability trading encryption system is mainly based on high-probability breakthroughs. The underlying logic is that after market makers (market makers) accumulate enough positions through volatile market conditions, they need to take profits from the positions through breakthrough market conditions. Our retail investors Traders should identify breakthrough opportunities with high probability (8 conditions of high probability are met). This underlying logic is reasonable and common to all varieties. Using your own unique method to deal with the details of opening and closing positions can achieve more efficient and stable profits.
For some systems, such as those that specialize in callbacks, the underlying idea is that whether the market is volatile or unilateral, there will always be adjustments in the market, and you can make a profit by seizing these adjustments. The event of a market callback occurs almost every day, but technically it is very difficult to determine when a callback occurs, and it is almost impossible to accurately judge with a high probability, which determines that most trading systems under this concept cannot be used for a long time Stable profit.
When the trading system fails, your first step should be to judge whether the underlying thinking of your system is reasonable as mentioned in the previous paragraph. If you do not have the professional ability to judge, you should seek a senior trader or a professional organization to diagnose it for you.
If you judge that the underlying thinking is wrong, then resolutely give up the trading system. If there is no problem with the underlying thinking, then the problem is almost due to the lack of strong defense capabilities of the system. At this time, you have to think about how to improve the defense capabilities of the system. Improve conditions and standards, control the risk of a single transaction, strengthen transaction management, and enforce rest.
The market environment is always changing, and it is impossible to achieve stable profits without a strong trading system. When you lose money continuously and find that your trading fails, please stop and try my method.
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