Every trader has experienced deviating from their strategy; sometimes it pays off, and sometimes it doesn’t. This post explores what works some of the time (deviations) vs what works over time (consistency). If this sounds interesting to you, please read on.
The Major Ways Traders Deviate from Their Strategy and the Consequences:
Below I list the major ways traders tend to deviate from their strategy. They all have one thing in common: they only work some of the time.
- Widening stops / Removing stops: This habit might feel like it works in the short term, but it’s a guaranteed path to blowing up because you are constantly increasing your risk.
- Cutting losses early: The trades you don’t give time to breathe often turn into winners right after you exit. These are the trades you need to become profitable.
- Taking profits too early: If you don’t adhere to your strategy’s profit targets, your expectancy will suffer. Long-term profitability depends on winning trades covering losing trades, this deviation is a direct path to becoming a losing trader.
- Holding on to winners too long: Profitable trades can reverse just as quickly as they started. There is nothing worse than watching a trade that was “big in the money” turn around and end at breakeven or, worse, a loss. Again, profits must cover losses.
- Adding to a Losing Position (Averaging Down): While this may work some of the time, the moment the trade doesn’t turn around is the moment most traders blow up.
- FOMO: Taking trades outside of your strategy might or might not work. In the end these kinds of trades are bad trades, irrespective of the outcome.
- Revenge trading: Deviating from your strategy because of anger is never a good thing, no matter the results.
- Overtrading: Forcing trades when there’s nothing to do means you are abandoning the rules of your strategy. These kinds of trades messes with your data, most often in a negative way.
- Trading when conditions aren’t conducive for the strategy: Your strategy will suffer if you trade when the market conditions aren’t conducive for it.
All of the above sabotages your strategy’s results. Often they reinforce negative habits that get more difficult to change the more you engage in them.
Why Traders Deviate from Their Strategy:
Traders deviate from their strategy (assuming they have one) because they:
- Can’t accept losses. This is the reason why they trade without stops, move stops, etc.
- Struggle navigating the uncertainty that comes with markets. This is why they do things like, take profits too soon (wanting the sure thing), trying to predict markets (getting fixated on a certain view), etc.
- Greed, the reason traders FOMO, revenge trade, overtrade, etc.
A lack of patience and discipline can be added to the above, both are essential ingredients to becoming profitable.
They Key to Long-Term Trading Success:
Consistently doing the right thing over time, as opposed to doing the wrong thing in the moment, is the only way to trading success. This means not making emotional decisions because of the discomfort and uncertainty you feel in the moment.
Instead of focusing on the outcome of one trade, view your results over a series of trades…trusting your strategy through its ups and downs.
The best place to start, in my opinion, is by lowering your risk so that you can take a loss and still stick to your targets.
Finally:
Consistency, paired with a long-term perspective, is what will take your trading to the next level.
I appreciate you reading this, and I wish you all the best with your trading endeavors.
Thanks and Regards,
Trading SOS SOS
