“We have discovered that in most cases the systems used by the best are relatively
simple, based on a limited number of recurring setups that allow the trader to go with the flow of the market created by the “big players.” - Dr. Dariusz Swierk
I was thinking of postposing the announcement of the minors change to the JPY Pairs Pullbacks trading method until June 2014. However, I’ve decided that those who’re interested in the strategy ought to be advised of the changes as soon as possible. No matter the strategy one uses, there would be losing periods. The way one deals with those periods is what determines the end game. A useful trading method should be OK when used in most market conditions, but it can’t win always in most market conditions.
1. The filter in the method is relaxed: The purpose of filters is to block some possible bogus signals, but it may also make the trader miss some winning signals as well. While a filter may result in fewer trader (and more accuracy in certain cases), it doesn’t prevent a strategy from undergoing alternative losing streaks.
2. Putting stop on ourselves: There are times when everything we touch becomes gold, and there are times when everything we touch becomes something else. There are times when we make money and there are times when we lose it. Nevertheless, recovery is easy when the loss is controlled. The stop on our trade helps, but the stop on ourselves helps better. A winning period may last for weeks or a few months; but so is a losing period. During the losing period, stops would continue to get hit, and roll-downs would keep eating into the portfolio. Therefore, we’ll stop trading in a month in which our loss exceeds 7% of all the total equity, and never open the new sets of trade until the next month. This is like putting a stop on ourselves.
The most effective way to deal with losing periods is to stay out of the markets during those periods. We don’t know when that kind of period may start or end, but we can help in capital preservation (apart from other risk control methods) when we put the stop on ourselves temporarily. We also don’t know when a winning period may start or end.
A combination of two positive expectancy systems may help, but one may frustrate the performance of the other during the intermittent winning and losing periods. A combination of one negative expectancy system and one positive expectancy system can’t also improve the statistics so much – the negativity coming from one may affect the positivity coming from the other. A combination of two worse expectancy systems makes the trade looks pitiful indeed!
All experienced traders acknowledge that every good system has a series of losing streaks and winning streaks. While a losing streak may cause some drawdown, an ensuing winning streak would compensate for that. We’re fortunate to be able to handle our negativity and positivity satisfactorily. When we limit our negativity by a certain amount, it won’t go beyond that amount.
A bad market condition tends to result in flat performance or roll-downs for a considerable amount of the time. While that kind of condition lasts, the experienced trader would simply wait patiently, apply risk control methods and look forward to a winning streak, which would inevitably come.
We play the markets to harness gains in the long run, not to make correct predictions.
This article is ended with the quote below:
“I know instinctively that worrying about the money, looking at my trading balance is the worst thing I can do. It is important for a trader to trade the markets, not his or her capital balance. I mean you have to have capital to trade, but a focus on account balance and not the markets is a trap.” - Peter Brandt
Eye-opening trading lessons: Lessons from Expert Traders