If you are not a profitably consistent trader by now, ditch all your strategies. Immediately. We see it in our work with traders almost every day; traders try to trade several strategies simultaneously while consistently losing with every single one.
What’s is it you are trying to accomplish by trading different strategies at once? Are you just looking for more trading opportunities? Do you think that by testing multiple strategies, you are more likely to find one that works? Or are you trying to smooth your equity graph by trading complimentary strategies for different market types? Whatever it is, you have to stop today.
The jack of all trades and the master of none
This is what usually always happens when a trader trades multiple strategies at once. It never leads to better trading and it always leads to more losses. Most traders completely lose their focus and their edge once taking on too many things.
Have you ever seen a professional soccer player playing in the NBA and the NFL at the same time? How many doctors do you know that are also tax consultants? And what would you say if NIKE would suddenly venture out and start a car manufacturing business? Of course, you’d say that no one can be successful at two fields. And you are right. But does that really apply to trading?
A trading strategy is so much more then what you think it is
It’s clear that a sports apparel company is very different from a car manufacturing company. And you also need a very different skillset to be a doctor or a tax expert. But, in trading, you only need to buy and sell – regardless of the strategy. Right?
This is where most people go wrong. A trading strategy is not just a set of instructions and a blueprint that you have to follow. A trading strategy is a complex construct and professional trading requires a unique skillset.
You have to stop believing that a trading system is only a set of entry criteria triggers. A good trading system consists of a thought out position sizing strategy that minimizes drawdowns and maximizes account growth; a reasonable and repeatable approach to stop loss placement that protects your capital while also maximizing your reward:risk; a take profit strategy that allows you to maximize winners while avoiding premature trade exits; a trade management approach that helps you protect unrealized profits and deal with fluctuating markets; and you need a strategy that helps you deal with, and adapt to, changing market conditions.
Each strategy requires a very different approach and all other trading parameters have to change when a strategy changes.
You don’t lose because of bad entry criteria
Although it sounds contrarian, it’s true: traders typically don’t lose because of bad entry criteria, but because they mess up everything else. Here are just 10 ways why traders lose – and bad entry criteria is not among them:
1) Undisciplined trading. Premature decisions and impulsive behavior
2) Stops are too close and don’t leave enough room for price to develop – misinterpreting market conditions
3) Stops are too far and reduce the reward:risk and the expectancy – misinterpreting market conditions
4) You let one regular loss turn into a big loss where it takes multiple trades to recover from
5) You risked too little and did not capitalize on the profit opportunity
6) You risked too much and lost an unnecessary large amount on a single trade
7) You managed your trade inefficiently
8) You exited too early and missed out profits
9) You missed a trade because you were still insecure after the last loss
10) You listened to someone else’s opinion
If you are honest, those reasons are responsible for probably 90% of all your trading losses. And it’s almost never a set of wrong entry criteria.
It is true that picking bottoms and tops, predicting instead of anticipating price behavior are also major problems, but such bad trading behavior is caused by a complete misunderstanding of market behavior, rather than a wrong set of entry criteria. And, consequently, traders who operate from a predicting mindset will almost always struggle with the 10 previously mentioned problems as well.
So, what does that mean for traders?
Your way out – Razor focus
If you really want to take your trading to the next level in 2016, stop changing systems and work on everything else. It will be hard and you will be tempted to look for alternative systems, but you won’t be able to escape the fundamental problems every trader has to deal with. You can’t run a successful business, if you screw up the basics of accounting, profit margin calculations and inventory management. You can’t become a professional basketball player if you don’t know how to dribble and throw a good pass.
Trading multiple systems will only make your problems worse because it takes your focus away and instead of working on the core skills a trader needs, you are just looking to get more signals while neglecting all other trading principles.
If you need assistance and are wondering how to do all that on your own, take a look at our 12-week course bundle where you get our Edgewonk trading journal and step by step instructions on how to turn things around for you.