In this episode of Truth About FX, Walter digs into trading systems and how important it is to know your personality first and cognitive biases before you go “systems shopping”, especially when you’re just starting out. Should you stick to one system or experiment on different ones? Hugh opens another perspective in scalping… And when do you know you need to try something else?
Walter also shares David Franklin’s techniques and how his setups helped him build his core system.
Download (Duration: 06:03 / 6.94 MB)
In This Episode:
00:34 – just one
02:18 – does not fit
04:00 – adjust it
05:15 – eye-popping
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. When I first learn to trade, should I stick to just one system or should I find multiple system at the same time?
Walter: I’m a big fan of trying to just get one thing down. You can always add more systems later but here’s the problem, if you’re trying to trade five systems at once or even three. Let’s say, you’ve got three systems and you really like them and you like to trade them.
The problem with that is that if you’re beginning as a trader, you’re just starting out, you’re less likely to stick with all of them. You’re probably going to rotate them in and out and you’re probably going to get frustrated with one or two of them. You’ll never really going to be an expert.
So, my approach is, decide what makes sense to you. Go with the best system you can come up with. Become an expert at that and then later on once you’re really bored with that system you can have more. That’s what I would say. I would just do that.
Try and work really hard at getting good at that and you can always add more markets. So let’s say, you’re trading a system on the EUR/USD and it goes really well. Well then, try and add the Pound and the Swissie and the Aussie. Add a bunch of other currency pairs on there and see if you can multiply your opportunities that way.
And then later on after you’ve been trading that system for two or three years, then maybe it’s time to look at adding a new one. In the background, you can still be testing your other systems, your potential systems of the future to add to your portfolio.
But really in the beginning, I think, I strongly believe, you should to start to really kind of hone in for one thing. Otherwise, it’s just too easy to throw things away because the systems are too cheap.
But, if you’ll invest a lot in a system, it’s going to be more difficult for you to throw it away. So I would definitely try and stick to one system then slowly add more markets and then from there, you can add more systems. That’s what I would do.
Hugh: I see, that makes a lot of sense. What happens, if let’s say that somebody finds a system they think it’s really good because the trader who is trading it is making a lot of money but the system doesn’t fit their personality?
Let’s say like, we’ve just talked about scalping in the last episode but maybe it’s a scalping strategy and they’re no good at scalping. Do they obviously be continuing with that? At what point would you say, “Okay, I need to go to something else.”
Walter: Well, I think you nailed it Hugh. That comes with knowingly yours as a trader. So, I’ll give you an example. So David Franklin, who does that scalping system where we have these free webinars for people that are interested in that. I can put a link at the bottom of this episode.
I don’t know if he’ll still be doing them but you can click the link at the show notes because we have these webinars with David. One thing I would say is, I recognize that David is really a good trader.
I recognized that he does really well at scalping but I also understand that I don’t want to do that and I am not good at that. That’s not really my thing. So what I’ve done is I’ve taken one of David’s core setups and I’ve been testing it on the D1 charts.
Now David trades it on the M5 charts. So that’s one and it works really well and he even suggested he said, “You’ve probably find that it has a higher win rate” and it does so far. It’s really early days. I’m just backtesting it in forex tester right now but it’s pretty awesome that I’m able to take this M5 chart system that he trades and I’m able to see, really solved results on the D1 charts.
So, that is something that I would encourage you to do. When I first started trading, my trading mentor, he was a lower time frame period too. I recognized straight away that I didn’t want to be looking at the M5 charts. I wanted to look at the H1, the H4, the D1 charts. Those are the ones I wanted to pay attention to.
I kind of drifted away from his style as well and so that might be what you might do. You might sort of adjust it that way. So, timeframe is one way to do it. The other way that sometimes make sense is exit.
So, if someone trades a system and you like it, but you don’t really like the way that he or she gets out of the trade, you could add some different exit strategies like a trailing exit or something like that.
I’ll give you an example of that one. So another trader I know, he had this system that was widely known. It’s a breakout system and I think it made something like 50% a year on average over the last 10 years.
Simply by changing the exit and making the exit a little bit more you know, it’s able to capture real strong runners, he was able to increase it by like six full.
Walter: Yeah, and so now he also added an element of discretion so that shouldn’t be underrated either. So, originally the system could have been traded as an EA and it would have been okay but he added an element of discretion where there were days that he just wouldn’t take it.
He would just say, “No trade today because the market looks like it’s up againsts resistance or support” or something like that and he would just say, “No, I’m not going to take it.”
So, that’s part of it too and it’s not just the exit that was responsible for that but it was a pretty eye-popping result to see this pretty good system really look really good as soon as he started looking at adding more alpha by allowing the trade to run.
So those are the two areas that I would probably first focus on if you can. You’ve got some logic that you like and you’re into that system that someone’s teaching. You can trade the timeframes out and change those around and then you can also change the exit. Those are probably the two easiest ways to change how it fits your personality, I suppose.
Hugh: Okay. Well, that’s an awesome advice. Thanks, Walter.
Walter: Thank you.