Dangers of Giving Up Too Soon on a Trading Strategy GOLD, FOREX
There are hundreds of different strategies to trade. Some of them are losing ones, some provide modest results and some strategies are very profitable.
Novice traders often struggle to find the right strategy that suits their personality, financial goals and risk appetite. Unfortunately, they also tend to make some common mistakes that can undermine their performance and confidence.
❌ One of the biggest mistakes that they make in their search is that they give a strategy a very short trial period. It simply means that they are trying to assess the validity of the strategy, trading that for a very short time span (usually a day to a week).
Please, realize the fact that the performance of the strategy can be measured only with extended backtesting - meaning that the strategy should be tested on multiple financial instruments and for a long period of time and applying multiple evaluation metrics.
Moreover, if the strategy proves its efficiency on backtesting, it should be traded on a demo account at least 2 months before the valid performance can be calculated.
❌ Another common mistake is that many traders drop the strategy once it starts losing. And by losing, I mean just 2–3 trades in a row.
Newbies are searching for the approach that never loses.
They may even abandon a trading strategy once they catch JUST ONE bad trade.
✅ In contrast, a smart trader realizes that one bad trade does not define the performance of the strategy. Moreover, such a trader calmly faces the losing streaks and sticks to the strategy.
Take a look at that picture.
On the top, we have the traits of a newbie trader and his equity curve.
He abandons the strategy after he faces the loss, not giving the strategy a chance to recover.
When he changes the strategy, he starts recovering a little bit and a losing period follows.
He drops a strategy again, and he keeps following this vicious cycle till his entire account is blown.
On the bottom of the picture, we see the equity curve of a smart trader.
Even though he faces losses occasionally, his strategy always gives him a chance to recover and with time his trading account steadily grows.
Please, realize the fact that a perfect strategy does not exist. You will lose the money occasionally anyway. What distinguishes a smart trader from a dumb one is his discipline and trust to his trading system and willingness to face losses.
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