The Myth Of The Simple Trading System

How many times have you told yourself: “All I want is a simple trading system, with one indicator…that makes a small, consistent gains every month.  It can’t be that hard.”

Then you proceed to jump from one trading method to another, in search of that one super simple method that will finally start to build your account.  Well, I’m here to tell you that the simple trading system is a myth.  Here is why…

The Myth of the Simple Trading System

That simple trading system is down here somewhere…

Even a trading method with no indicators is still not simple

Some trading methods can be taught in 5 minutes.  Other trading methods do not use any indicators.  People may consider them simple and by most definitions, they are.  But too many people equate simple with easy.

They think that they will learn a method in 5 minutes and start making money every month.  It could happen, but most likely not.

What else is involved?

You still have to go through the process of testing that system for yourself.  It could be done with backtesting, or if your system trades often enough, you can do just forward testing.  Hopefully you are doing both.

Then you have to test it on every pair you want to trade it with.  Rudy Leder put it best…he said that each currency pair is like a girlfriend (or boyfriend).  You really need to spend time with them to get know how they react in different situations.

Does the pair go psycho sometimes?  How many losses in a row can you expect?  Are there times of the year when it works better?

More importantly, testing gives you faith.  You will get to know your system and be able to stick with it, even when it is losing.

After you have a method that is profitable, can you make it more profitable?  I’m not talking about curve fitting (over optimizing), but experimenting with different settings that work well in most market conditions and across all the currency pairs you want to trade.  This can take time.

Hmmm…this is beginning to sound suspiciously like work.  Not so simple anymore, huh?  I don’t want to discourage you, but this is what has to be done.

Most people give up too soon

Let’s get something straight, testing one month of data is not backtesting.  But still, some people test one month, lose 5 trades in a row, then say that the system doesn’t work and move on to the next one.  I have been totally guilty of this in the past, so that is why I bring it up.

Stick with it and test it for as much data as you have.  Only after careful evaluation can you really see the potential of the method.  Then go back and test the exact same method again.  Did you get the same results?  If not, why?

When jumping makes sense

Only after you have back and forward tested your strategy for awhile, can you decide that the method is not for you.  I traded and tested the Wallaby for awhile before deciding that I didn’t want to trade it anymore.  Same thing goes for a couple other strategies in the past.

If the method looks good in testing, then give it a real go with it in a demo account and see how it works in real life trading.

What you can do right NOW

Commit to writing down the exact trading method that you want to test.    Include entry signals, stop loss, when you will move your stop (if ever), when to increase/reduce position size, how much to risk on each trade, etc.  Then go out and test it…completely.  You can use Forex Tester or any other testing software that you like.  Stay with it and record your results.

Remember that even if a trading method looks simple, there is still a lot of work that needs to be done.  What are you going to commit to doing right now?  Leave a comment below to announce it to the world, then go do it!

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Photo: jonycunha

Comments

  1. says

    Agree with you, Hugh. I always advise to stick to your method and do not change it often. Furthermore, make a forward testing on micro live account. You will see how it works in real life. Demo is not an option.

    • says

      I agree with using a very small live account to test, but that can be different for different people. Some people really do need to start on a demo account.