Sometimes traders abandon a strategy after the first trade (usually because it was a losing trade). Most traders don't stick with a strategy for too long before they go and try something new. While bouncing from one strategy to the next, how can a trader ever expect to attain consistent, positive results?
A path to consistent results is as much in the strategy as it is in trusting ourselves in times of poor results. So how can we as traders, with an auto-trading or manual trading strategy, achieve consistent results? A combination of solid market analysis and strong psychological conditioning is the key.
I have been through the cycle of trying out different strategies when I was starting out my trading career, and I can honestly say that if I didn't go through rough times in which I lost money, I wouldn't be have learned important (and expensive) lessons along the way. While some of the important rules in which the foundation of my trading model were built upon were established early on from different market related trading experiences, the hardest aspect in my everyday trading life is the psychological aspect, and trusting my trading model.
So how do I know when to stick by a strategy or when cut it off? This is one of the hardest things about trading. How do we know if the strategy is becoming a non-effective losing strategy or just going through a rough patch. This is where it is important to keep records of exactly what is going on with the price action in the market to cause our strategy to go through drawdown. What I turn to in times of sustained drawdown is historical results.
How did my strategy perform over other periods and what was the drawdown like in those periods? If I can gain some insight based off of history I can simply tell if this is just a market cycle similar to one in the past that the strategy has recovered from, or is this a complete shift in the market in which my strategy may not be able to recover from? If the latter could be true, was there some sort of catalyst that could have caused this market shift?
These are the tough questions I think we need to be able to answer while in a long period of drawdown. It is not as simple as just cutting the strategy off completely because oftentimes the strategy will begin to recover and then we didn't give the strategy the chance to recover the drawdown and are left with losses. To be a successful trader, we have to break the poor habits that we, as people, pick up because we are trying to outsmart the market. Not being able to take risk and allowing the strategy to run its course is a recipe for choppy trading results. Our trading mind has to be conditioned to be comfortable with the outcome of each trade as long as the trade fits within our trading framework or strategy.