A question arrives from TN reader Paul T:
Rich, I trade my own strategy (I leant it from a book and added my own twist). It does work but I can’t seem to get it performing past breakeven. I’ll have a good run and then it always seems to hit a sticky patch where the earlier profits get swallowed up! Any tips on how I can dodge these losing trades? I seem to be out of sync with the market at times.
It sounds to me like Paul’s strategy relies on certain conditions being in place.
So, for example, if his strategy relies on breakout trending moves, it’d be no use using the same approach in a flat sideways market. It’s the wrong part of the cycle for Paul’s strategy to perform well.
The opposite could be true of course. His strategy might work well in range bound markets – selling the top of the range and buying the bottom – but it falls to pieces when the market start trending.
I’d need more specifics on what the strategy actually does in order to give specific advice.
But since most home traders are using trend-based approaches, let’s see how to quickly tune-up a strategy of this type…
First of all, take a ‘big picture’ STRATEGIC OUTLOOK.
If you’re looking for your trades to run with the trend you need to be trading along the path of least resistance. You’d need to position yourself so the natural flow of the market could carry your trades along effortlessly.
Think like a surfer here. You want to spend your time riding big waves in to shore, not facing the wrong way around and getting pummelled down to the sea bed!
So for me, a strategic outlook here would mean using an analysis of trend of some description. This would give you your high-probability directional bias in the market.
Once you’ve got that in place – and only once you’ve got that in place – you can start thinking tactically…
TRADING TACTICS are a secondary consideration.
(But unfortunately, this is what most traders naturally gravitate towards straight away!)
Trading tactics is the nitty-gritty finding of trade entry points. It’s the identification of stop loss locations and management of trade exits.
It is important stuff and it can be elevated to whole new levels when it follows the directional bias you take from your strategic outlook.
So if you take time to get a strategic outlook in place FIRST you’ll be taking a much more effective edge into battle.
You’ll be wielding a much sharper weapon!
And the great thing is there are so many ways of achieving a strategic vision and coupling it with cutting edge trading tactics.
In fact, there are as many ways of doing it as there are traders in the market. There is no one-size-fits-all!
So today’s task is to do a quick ‘audit’ on your trading approach…
Can you separate and identify your Strategic Outlook, and your Trading Tactics that follow along after it?
If not, drop me a line – firstname.lastname@example.org – and I’ll see if I can help.