Don’t Scrap That Trading System – Give it a ‘Tune-Up’ Instead!

It was the most nerve-jangling thing I’ve almost ever done…

I say ‘almost’ because it never actually happened. Not this weekend anyway. But it’s been penciled back in the diary for sometime in June so I’ve not got away scot free just yet.

You see, I’ve got this mate who’s into planes.

He’s a commercial pilot by day and a bit of a stunt flyer in his own time. What can I say – he just really, really likes aeroplanes!

About six months ago he bought a share in a 1960’s RAF trainer and has been threatening to take me up in it ever since. He takes great pleasure in describing his aerobatic maneuvers and watching the colour drain from my face.

Barrel rolls and loop-the-loops sound bad enough, but thinking about the ‘Tail slide’ turns me green. Listen to how you do it…

You take the plane into a vertical climb until it runs out of speed and stands still, pointing straight upwards. You then try and hold that position for as long as possible before letting it fall back towards earth, tail-first… feeling queasy yet?

The nose of the plane eventually drops below the level of the tail as you now fall into a vertical dive. The pilot then calmly pulls out of the dive and brings the plane back to level flight.

Now doesn’t that sound like some kind of roller coaster ride on steroids?

I’d been nervous, but excited for days…

Anyway, we had this flight all lined up for Saturday and I’d been nervous (but excited) for days. He said he was going to perform all these tricks over the fields at the bottom of our garden, “it’ll give your kids something to tell their friends at school”. But as it happens, the plane never made it out of the maintenance hanger. It needed a few bits and pieces and they were taking their time to arrive.

Looking at the service schedule I was quite surprised at the amount of hours spent servicing and maintaining a plane against the actual hours spent in the air. I know I shouldn’t have been. I mean, it’s not like you can roll onto the hard-shoulder if bits start falling off your plane like you would with a car. No, these machines are meticulously cared-for and maintained.

So anyway, after we drew a blank on the stunt flying we spent the afternoon at Oulton Park instead (our local motorsport race track). If he can’t get up in his plane, anything else noisy and fast will do!

It was a motorbike event and there was some real nice vintage kit on display. Now I don’t know the first thing about bikes (my dad scared me off them at a young age) but even I could appreciate the old Nortons and Triumphs that were being prepped to race.

Mechanics were crawling all over these machines tinkering and adjusting them for maximum performance.

And there we were again, the theme of the weekend…

Look after your equipment and it’ll look after you

But we don’t really do that with trading systems do we?

We just kind of expect them to carry on working indefinitely, with no maintenance or further attention.

If a trade set-up goes through a flat spot it tends to get tossed aside as no-good. Have you ever been through that yourself?

I certainly have.

I could tell you about one futures system in particular. It was very, very reliable. Made me a LOT of money but when it went through a period of drawdown, I’ll be honest, I couldn’t stomach it.

And compared against the returns it had created this really should have been nothing to worry about. The cyclical nature of the financial markets just put a temporary hold on proceedings until more favorable conditions returned.

But I quickly moved onto pastures new and even today I still daren’t check the historical results of that system…

Knowing the exact amount of money I’d potentially thrown back at the market would be too much of a slap in the face, so I’m certainly not leading by example here. Learn from my mistake instead…

If you’ve got access to any old trading rules or systems that seem to have lost their lustre, why not give them a “service and tune-up”. See if they can’t be fettled and adjusted to deliver the goods again.

Sometimes all it takes is a small change to one of the parameters of the system to counter-balance changes in the marketplace. You could give an old system a complete new lease of life.

Here are five areas to consider tweaking when refreshing a trading system:

1) What to buy and sell

If you have a cracking strategy that works well in one market, go and try it in others. Sometimes, with a little bit of custom-tailoring, you can get even better results in completely different markets or via different financial instruments (and if you want to see an example of this in action, take a look at Profit Band Binaries – a Bond futures strategy that’s carving up the forex market, via Binary Options).

2) When to buy and sell

Have a play around with the entry signal itself. If it’s one generated by indicators, try adding in a price-action based ‘confirmation’ to trade. If you’re trading off price action already, try the same pattern but on a higher timeframe. Or try trading off a different type of chart…

Trading a breakout strategy off a less ‘noisy’ point-and-figure chart can give you a very different experience than trading it off a bar-chart. Could that make all the difference to your results?

3) When to get out of a loss

Has a change in conditions meant your standard stop-loss placement is now too-tight? Is it too far-out? Review the range of results you could achieve from a range of different stop placements. How about scaling out of your position with stops? What if you covered half your risk on a very tight stop and left half wider-out? What if you used a time-stop instead of a price-based stop i.e. the trade has X amount of hours to move in your favour or you cover the position? Can you think of other creative ideas to test?

4) When to get out of a win

In just the same way, experiment with the different results you’d get from a wider range of profit-taking exit points. Instead of hitting for six, what if you took more frequent, smaller profits instead? If you’re a scalper by nature, what if you let your trades run on and simply trailed a stop behind them to get you out? Have a play. You might just stumble upon a mind-blowing, yet simple, modification to your exit strategy.

5) How much to buy and sell

Instead of using the same old % of equity per trade. What if you came up with a more creative trade-sizing system? How about scaling up your position sizing after X amounts of wins (the market is showing you your system is in tune with current conditions). How about if you then scale back your position size after a further X number of wins (probability now favouring a return to the mean with a potential losing trade). What if you were to take only the next five trades after your system showed each loss? I’m sure you can come up with many, many more ideas to try yourself.

So what do you think? Would it be worth ‘servicing’ a neglected system before you cast it off completely?

Everything – planes, bikes, or even trading systems – will respond favorably to a bit of love and attention!

And YOU don’t have to be the grease-monkey. I’ve already tuned the engine for you on this one…

If you want to take a short-cut, here’s a system I’ve already ‘flight-prepared’ for you.

It’s been finely tuned, it’s ready for you to gun the throttle, and traders already on board continue to report fantastic results. Here’s what one trader called ‘Grabling’ told me…

Thanks for PBB, very simple to understand and easy to identify the trades. I currently don’t have the ability to trade every day, but since signing up for the PBB I’ve place 3 trades and have a 100% win rate – BRILLIANT.

I really like the daily trade reviews, allowing me to see what happened on those days when I can’t follow the market and also to check that my trades are in line with yours when I do. Your summary on what happened in the market is very educational.

Why not give it a test-run yourself? You can read more here

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 30th April:
10:00 EUR Consumer Price Index
13:15 USD Non-farm Employment Change
13:30 USD GDP
19:00 USD FOMC Interest Rate Decision/Statement

Thursday 1st May:
All Day EUR Labour Day Holiday
09:30 GBP Manufacturing PMI
13:30 USD Yellen Speaks
15:00 USD ISM Manufacturing Index
Friday 2nd May:
08:55 EUR German Manufacturing PMI

Monday 5th May:
All Day GBP May Bank Holiday
15:00 USD ISM Non-Manufacturing Index

Tuesday 6th May:
09:30 GBP Services PMI

Don’t forget the big report on Friday – US job numbers! Have a great week and as always, drop me a line with your thoughts and questions.