Sticking to your trading strategy is often the most difficult thing for traders to do. That’s because sticking to your strategy means: you don’t hop from one strategy to the next, you manage your trades (stop losses and profit targets) according to you rules, your risk management is according to your rules and you don’t let all the noise (social media) influence your trading decisions.
It’s Difficult:
All of what I just mentioned is difficult. It’s easy to say: “just stick with your strategy and all will be okay”, but when you break it down it’s not all that easy.
- Yes, you have to stick to your stops, but its very difficult after you’ve been doing it for a couple of trades and all of them got stopped out… Just to see them reverse in your favor afterwards.
- Yes, you have to stick to your profit targets. But it’s very difficult to do after you’ve experienced a couple of losses, and now you’re in a profitable trade that’s halfway to target… And you know if you take profits now, it will make up for your losses.
- Most of us know what a reasonable risk amount is for our trading style and strategy. But we are inclined to risk more after a couple of losses (revenge trading). We also tend / want to risk more when we are on a winning streak (inflated ego / confidence).
- Then there’s all the noise out there. I don’t want to get into here, but even I struggle with this at times.
Stick with It:
Michael W. Covel writes the following in The Little Book of Trading: Trend Following Strategy for Big Winnings:
“If you learn anything from this book, let be the simple lesson: Stick with it. There will always be distractions: Breaking news banners, surprises, and unpredictable chaotic events are everywhere, but you can’t let yourself be fazed. Here is one big secret: Top traders don’t pay attention to that stuff. They have found, through hard work, diligent study, and perhaps a little luck – that their ability to stick with a trading plan is far more important than knowing and worrying about what their neighbor is doing.”
Keep in Mind:
Sticking with your strategy is important, but keep in mind that it must be a proven one, it must have and edge and it must be backed up with positive results via back testing, otherwise you will always be second guessing it.
Can strategies stop working? Will you sometimes have to make adjustments to your strategy? Sure, it can happen… but it doesn’t mean that you start doubting and changing your strategy after 1, 2 ,3 or 5 losses. That’s way too little info.
What you should do is keep gathering info, and after you have enough data you can investigate. But in the meantime you keep trading, you stick with your strategy.
Note: Normally through back testing or if you’ve traded your strategy for a long time, you will know when your strategy performs well and when its performance is poor. Knowing your strategy and knowing what to expect is a huge advantage.
Finally:
You will have good periods and you will have bad periods when it comes to trading. If you can accept this, it will be easier to cope when your strategy is not performing. Also, sometimes you have to experience (go through) the bad in order to appreciate (get to) the good. I also wrote about this here.
Thanks so much for reading. Best of luck with your trading.
Thanks and Regards,
Trading SOS SOS