Traders usually tend to look for trading approaches that work for them as it is important in order to enhance their trading skills. Of course, traders normally operate with different strategies, suitable for different trading instruments and market conditions. But how to know which one is a bad trading strategy and which one isn’t? When should you switch up your approach if it’s not working?
Losses and misfortunes are normal in trading. However, if you are noticing a streak of losses and something just doesn’t feel right, it might be the time to consider shaking things up. Here are 5 signs that may be considered as a bad trading approach.
Your trades are mostly unsuccessful
It may sound obvious, but if you are consistently unlucky, there might be an issue with your trading approach. If you’ve set it up correctly, adjusted all the technical nuances and tried it on different assets and it still didn’t bring you any positive outcomes, it might simply be a bad strategy. There is nothing wrong with ditching it and trying something new: just because it worked for someone else, doesn’t mean it will work for you.
Letting go of trading strategies that do not work for you is important, since it saves your time and nerves. You may decide on a limit — the amount of attempts to make a strategy work, before you move on to something else.
You struggle to track your performance
Any good trading strategy has to involve performance analysis. Looking back at your deals and evaluating them is crucial in order to improve your approach. If your trading strategy does not include this aspect, it means that it excludes the opportunity for you to grow and develop as a trader.
The solution is to rethink your strategy and include performance analysis in it. This may involve keeping a trading journal, where you would write down your deals’ details. In case you aren’t sure how to keep a trading journal, read all about it in this article.
Emotions often take over
A trading approach has to involve risk management tools that control the size of the investment, entry and exit conditions, the acceptable risk degree and so on. These features are aimed to manage your deal even in moments of weakness, where you might give into your emotions: fear, greed, impatience.
If you notice that you let your irrational side act too often, your strategy might be lacking some of the money management adjustments. You may introduce risk management techniques to your strategy and see whether it helps to control your trading routine better.
You can’t consistently follow your own trading approach
Sometimes a strategy might require too much energy from the trader which results in them ditching parts of this approach and not following it exactly. If the strategy is too unclear, too complicated, requires too many adjustments or too much time to execute, it might be a sign of a bad trading approach or simply an approach that does not suit you. You may decide whether you want to take some time to adjust the strategy according to your personal needs or if you are ready to move on from that strategy completely.
The trading system is too weak
This might be surprising, but many traders simply stick with a one-indicator strategy and do not make any efforts to enhance their trading approach. While there is nothing wrong with using just one indicator, it is important to constantly learn and find new strategies that may work best for certain assets or timeframes.
If you notice that you got stuck in the same routine and your strategy might prevent you from catching important entry or exit opportunities, learn about the ways to enhance it and don’t be afraid of introducing new types of analysis into your approach. Check our guide (parts one and two) on how to choose a trading strategy to find information on how to build an effective trading approach from scratch.
