A recent Twitter poll on our Twitter profile shed light on the challenges traders face, with an astonishing 50% of respondents citing “Finding good strategies” as their biggest hurdle. Here’s the result:
We’ll be honest: beforehand, we were pretty sure dealing with losses would be the biggest trading challenge. But we were wrong, and it seems most traders struggle with finding good strategies.
Perhaps it makes sense:
Why finding good trading strategies is difficult
Finding trading strategies is difficult for a number of reasons, including:
- The markets are complex and ever-changing. There is no one-size-fits-all trading strategy, as what works in one market condition may not work in another. You stop looking for strategies that work for all asset classes. Too many are looking for strategies that work for gold, bonds, and stocks (to name a few), but you are unlikely to find a “universal” trading strategy.
- Trading is a zero-sum game. For every trader who makes money, another trader loses money. This makes finding a trading strategy that consistently outperforms the market is difficult. Most traders are destined to fail.
- Traders’ own emotions can often get in the way. It can be difficult to stay disciplined and stick to a trading plan when the markets are moving against you. Traders need to be able to control their emotions and make rational decisions. We suspect many traders mistakenly throw away strategies even after expected and short drawdowns.
- We suspect many traders need to be more realistic about their expectations and understand the risks involved.
How to find good trading strategies
Here are some tips for finding trading strategies:
- Backtest potential strategies. When you backtest, you discover things you were not aware of.
- Keep a trading journal to track your progress and identify areas for improvement. We have even made an example of a trading journal for you. It doesn’t need to be complex. The primary thing is to do it systematically day in and day out!
- Don’t be afraid to ask for help from other traders. There are many online and offline communities where traders can share ideas and learn from each other. Two traders (normally) think better than one.
- Start walking. Walking and activity are great for brainstorming. Get away from the screen(s)!
- Read our article called how to find trading ideas.
Stop looking for “optimal/perfect” trading strategies
Remember, there is no such thing as a perfect trading strategy. Even a sub-optimal strategy can be a perfect complement to other strategies!
- Does your trading strategy complement your portfolio of strategies?
- Why build a portfolio of quantified strategies (including two strategies)
To help you get ideas, we recommend our landing page, where we have published “a ton” of trading strategies and systems for free.