If you’ve spent enough time around forex trading forums, then you’ve doubtless encountered a trader or two who say that they’ve made consistent pips using just one trading system.
But you’ve also seen others who can’t seem to replicate the OP’s stellar trading performance. In fact, this is probably the case more often than not.
Don’t worry; this is not because the OP is selling a get-rich-quick scheme. Well, at least I hope not.
Instead, it’s more likely that the OP had used his/her strategy at fortunate time when the set of rules worked well with the trading environment that he/she used it on.
Traders usually spend tons of time tinkering with indicators, parameters, and trading rules without giving much thought to how long they might work.
Take a basketball game, for example. Team Blue has prepared to go against Team Red by breaking down the individual players’ stats and analyzing their usual plays. They’ve made allowances for errors but they also generally expect the odds to tip in their favor.
Winning against Team Red means identifying which plays they’re executing and making adjustments for it. Not at the end of the quarter, but as soon as possible.
Likewise, the best way to keep Team Red on its toes is to switch up the players and strategies as soon as Team Red has caught on to Team Blue’s plays.
Forex trading has the same principle. If you want to be consistently profitable, then you’ll have to be profitable across different trading conditions.
So, how can you be profitable in any trading environment? Here are a couple of tips.
Spend as much time as you can studying price action.
Nothing beats experience. While backtesting will go a long way at pointing out strengthening and weakening market and indicator correlations, your experience will also be useful in identifying the earliest signs of change in trading conditions.
Are bulls taking back enough control to end a trend? Or has a market catalyst inspired a breakout from tight ranging conditions? Has an SMA crossover finally failed to herald a change in trend? Don’t hesitate to use a trading journal to help you remember your observations.
Use both discretionary and mechanical trading
While mechanical trading works for a lot of traders, the systems also only work as long as you’re using the right tools in the right environment.
This is where discretionary trading comes in. Remember that your profitability hinges on how fast you can adapt to changes in trading conditions.
But since a lot of systems tend to use lagging indicators, you’ll need your experience and discretion to identify and take advantage of market changes.
Experiment with different trading strategies
Once you’ve confirmed a change in trading environment, it’s important that you quickly change gears and adapt to it. This means you’ll always have to be ready with more than one “play” in your playbook.
Backtesting different time frames, indicators, and trading conditions will help you expand your playbook. More importantly, (successful) results from previous backtests will increase your confidence about jumping to another strategy and prevent a myriad of trading psychology-related trading mistakes.
Just because a strategy has yielded you pips for days doesn’t mean that it will do so for the next couple of weeks. Be ready to switch your strategies as soon as your parameters call for it.
Practice good risk management
Just as basketball players don’t shout their intended plays to the opposing team, you also won’t know WHEN market conditions will change.
But if you practice good risk management habits – in each and every trade – then you can afford to be stuck with an open position that used an old strategy while trading conditions are changing.
Just make sure that you use the appropriate strategies in your next trades!
Remember that forex trading is an ever-changing jungle that can’t be successfully navigated through with a single set of tools.
If you want to be consistently profitable, then you can’t expect a single set of rules to ALWAYS work in your favor. Be ready with different strategies and be flexible in using them.