Did you know that trading is like growing a child?
In this episode of Truth About FX, Walter breaks the code of a noob’s principle that you should learn multiple systems at once. According to him, it is always better to focus on one system as you progress through your trading. Walter also shares some tricks under his sleeves on how he was able to get his first profitable system.
He also shares one of the biggest downfalls of any trader when they change their system.
Download (Duration: 07:34/ 9.1 MB)
In This Episode:
00:51 – first child
01:53 – cooling off
03:22 – victim
04:01 – babysitting
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. This is a question that somebody wrote in. “When I’m first learning to trade, should I stick to learning just one system or should I try multiple system?”
Walter: Great question. I think it is better to just focus in on one if you think of it as your systems are in different stages. For example, I have an idea of a trading system that I am just trying to look into this week. It’s like when your first child is born. Then, what you have to do is you have to like teach it to walk and everything.
What I would do if I was just starting out — and this is my first profitable system — I’d wait till I had it at a live trading stage. I’ll backtest in Forex Tester, forward test in a demo account, forward test in a small money account, and then move it to a larger account, larger amount of money that I am willing to risk.
Once I get it to that stage, then I would start the next strategy if I already backtested in demo trading and that sort of thing. I think once you traded it on live money, it’s cool to go back and start testing a new one and start growing it, so to speak.
The other thing to keep in mind here is sometimes, you get really excited — and I do not know about you Hugh — but you might get really excited about a strategy and you just want to go live so badly with it.
Hugh: Oh, yeah.
Walter: One thing you can do is just build in like a cooling-off period. What that might mean is you have a rule that is like, “Whenever I have this new strategy, even if in back test, it looks great in Forex Tester, I have to wait three months before I go live with it even on a small money account.”
That will force you to test more, to run it through demo, which is of course, is live forward testing. It’s forward testing. It’s not the same as trading a real small money account but at least, you kind of pump the brakes of it because you can get really go gung-ho and probably risk too much on a new strategy just because it is new and exciting.
I would say wait until your first strategy is at the live money stage and then start ramping up the second one and so forth. At the end, the goal might be to have 20 different strategies that you are trading at the same time and they’re all vetted. They all have their own account, they’re all ready to go. That is how I would do it.
Hugh: I see, cool. Would you say that when people get started trading, when they are try to do too much at once, is that one of the biggest downfalls you see?
Walter: Yeah. Probably because of two reasons. One is a lot of traders aren’t aware of the drawdowns that their system is going to have. And so, when it gets into a severe drawdown, they awfully change the system.
The other reason is sometimes, it’s hard to keep track and if you do not have some sort of semi-automation, even if it’s just having your exits automated then you fall victim to hindsight bias because you’ll say, “Ahh, I missed this one. I knew I should have blah, blah, blah. I need to quit my job so I do not miss these trades” or whatever. Things like that come up.
I think you are right. I think that is a big thing but it’s probably, in my view, more due to the fact that many traders aren’t aware of the drawdown that the system is going to go through.
The other thing is that it’s hard to keep track. Even if you talk to automated system traders, you’ll hear them say the same thing which is they still do a lot of work. You think they just have an EA running, just kick back and sip on daiquiris or margaritas or whatever but it is not true.
They have a lot of different type of work where they’ve kind of babysitting these and making sure that everything is going well. When you are running a lot of strategies, it gets to the point where you have to do that, where you are doing some babysitting. You have to have a checklist, you have to have a routine. Checking the charts at the same time everyday. All that stuff has to come into it.
Hugh: Okay, great. Thanks, Walter.
Walter: Thank you.