The Importance of Multiple Set-ups...

It was only 2-3 Months ago that I started a thread based on me trading just one set up, one timeframe etc. This went really quite well until obviously the market seemed to thin in Volatility and hence my breakout strategy wasn't providing as much profit as it previously had... now this could be down to christmas or thanksgiving... what ever, but the fact remains that clearly my breakout strategy needed tweaking.

Then I spoke to some friends of mine and they mentioned that although I was doing a good thing in terms of discipline I still needed to find a few set-ups that I could use so at times of low volatility I can still trade.

My question is... Do you think as professional traders it is important to have maybe 3-5 set-ups that you can look for so you can always stay active or should you literally have just one set up and only trade that????

the saying goes jack of all trades, master of none. In forex you better be master of all and if not, just stick to 1. There is never anything wrong with growing your arsenal, but don't pack yourself with grenades if you don't know how to use them. There is much more personality to setups than just the initial pattern, and like anything mathematical, the exception is the rule - So don't feel rushed or pressured or impatient in your search for setups. Make sure that the setups that you do use, you know inside out, and if you do find other setups you feel comfortable with, make sure that you adjust the position sizing to an amount that would make sense in relation to your whole portfolio of setups. What I mean by that, is that if you primarily trade 15 min setups, you should be careful on how you position size a trade based off of a 4 hr setup. Hope this helps.

You know, that's a good question. One of the first things I tell newbie's is this: determine what type of trader you are. Do you want to take 1 trade per week? 5 trades per day? or somewhere in between?

Next, since there are lots of ways to skin this cat, classify your different types of trades. There are set-ups where you can expect 300 pips, and set ups where you should expect 30 pips. Know what you're looking at and recognize it.

I'll take 3 to 5 smaller trades per week, and 1 larger trade whenever they come around (about 1 a week for me). It's perfectly natural to mix different types of trades, and I strongly recommend it.

Also, for multiple setups, especially if gets to a handfull or more, I would research each setups performance as if it were its own index. Chart the performance and analyze it the same way that you would analyze an index with all of your fundamentals technicals etc. You will begin to see that there are optimal times to trading certain setups, and times when these setups maybee "overbought" and perhaps fading them would be better or trading a range based setup as opposed to breakout. Just a suggestion

Good Question Micardo.
I think that it is best to stick with a winning system if you have one and make the most of that. When I see a set up coming I give it a rating of A-best, B-good, C-just ok. Obviously going for the A setup is most profitable. Within your trading system it might be good to have more types of setups but also recognize that having more does not mean they are all on the same level of value.
I would not work more than one system unless it is to test, experiment and learn other techniques.
I stick with one system. That's where the bread and butter is.
Another idea might be to find a way to make your good trades ride along for more profit instead of pushing to get more entry points or setups.

Best wishes for 2007

After being on this forum for a while I have noticed that very little emphasis is put on diversification in general and system diversification in particular. As a matter of fact the exact opposite is being advised and promoted. And while mastering one particular pair and set up has its advantages eventually a trader needs to start diversifying across multiple pairs and strategies. Diversification is widely used by professional traders to offset risk. And since all of us (that are not there yet) strive to become professionals, one day should consider diversification as an important component of a trading plan. When looking into diversification one should look to diversify across pairs and strategies with low correlation. In another words if you are trading GBP/USD as your main pair one should look at CAD/JPY (for ex.) to diversify. So if you are in GBP/USD trade and then you get a signal to take a CAD/JPY trade chances are at least one of them would be profitable and your risk is being offset. The same stands true for strategies. If you play a break out on 15 min chart you could play a range bounce on a 4h. This could be very important because as the markets behavior changes one can have a strategy that can take best advantage of the new conditions. With using one strategy and pair you can have a lot of profit accumulated when the market “behaves” and when it changes you give a good portion of those profits back. If it is a good strategy you still get ahead but the equity curve is more of a roller coaster. With diversification the equity curve rises somewhat slower but much steadier. To me that is more attractive approach.

Good point but no necessarily true. As you said if trading an approach on 2 less correlated pairs, you say the chance of one of them winning is high. Is the chance of one of them losing high? Will it win on both more often than it will lose on both. Anyway, many questions need to be answered, but in general I hear what you are saying, although I think things can be worked out in other ways. Different pairs have different personalities and sometimes we model our systems on those personalities which make it hard to trade the same methodology accross all pairs. Lastly, I think it is important for each one of us to decide what a professional is and wether or not we fall into that category. I think a decided advantage that "professionals" have is small operating costs coupled with excellent execution. Alot of times, we look for one and end up sacrificing the other. Anyway, I believe that to be a huge edge and if you don't, well just imagine getting back over half in what you paid in spread and slippage and see what % of your account that amount is. That in itself to me makes the idea of multiple market strategy trading much more conceivable. You still maintain the large returns and your risk is reduced. What allows you to do this effectively is the small operation cost. You can afford B and C setups because the cost is so small. As for those of us who don't have that edge, we need to find and exploit other ones. If that so happens to be a deep knowledge in the realm of only one currency, than that and only that should be the focus of your efforts.

I think having more than one setup is useful, but as mentioned earlier, only if you truly know each one in and out. It's like building a house. You need different tools and different steps to build a house.

Start with your foundation. Whatever system you use, make sure you master the living daylights out of it and build yourself a solid and unshakeable foundation. You can't build anything on top of a soggy or uneven foundation that will sag and crack later on. It's important to remember that before you ever lay a foundation you have to let the earth settle first and lay your rebar. This would be the same as demoing the 91% successful system of yours into 100% condition. This is your groundwork, this needs to be as solid and bulletproof as can be otherwise it'll come back to haunt you later on.

Now you can build your frame and put up your walls. Again, this system needs to be rock solid as well as you don't want to fall through your bathroom wall for instance. Of course, with a solid foundation, this step can be taken nice and slow since you know what you're building on isn't going anywhere and is there to stand the test of time.

Now let's get this thing plumbed, electrified, and gased up (natural gas = the win, no contest). Filling in all the gaps at this point. Finding that other system that fills in those trades that you missed for whatever reason or other and adds that little bit more to the account but may not be the biggest payout overall, but profitable none-the-less. Those little 10pip daily trades for instance.

As for finish out with paint and flooring, etc, this is financial planning at it's best. You've gotta make sure that you do it right the first time as it can be a royal pain to the wallet and the clock to have to go back and change out a room. At the same time, if you've built a solid house it's there to shelter you while you can take your time if you want to finish it out just how you like it. But once it's setup just how you like it...there is no greater feeling. After all, your setup needs to be to your liking since this is going to be your's for quite a long time.

Now you need to insure everything since no one wants to watch their house burn down and then lovingly eye your neighbors refridgerator box as a new apartment. Put some reserve capital away in some sort of parking space. Secure your investment.

This is when you stand up, look around and declare "This is my house! I built this from the ground up in my design, and I got to do it my way! I also built this thing to withstand the test of time so it is there for me as long as I want!"

Just don't forget, a house takes maintenance. Every now and then you need to change out your appliances for newer stuff to keep it up to date and it makes your house better too (update those trading systems, change out settings, etc). Keep it clean and tidy so you don't have unwanted guests like the IRS knocking on your door offering to clean you out. Keep your affairs in order and your house will treat you well as you treat it well.

Edit: An addendum. You shouldn't try and build your house as a copy of someone else's. That never works and you'd never be truly satisfied with your account and it's progress. However, you can certainly take inspiration from someone else's setup and get some great ideas on what to do with your own. And no one's a biter for making two houses in the same style. If it's what you want, it's what you want; and that's the only acceptable reason.

Just like anything else in trading to each his own. The main point I was trying to make is that there are many different aproaches and one should consider them all. Not necesarily use them all but at least be aware of their existance.

This forum is made up of 1000+ memebers who read, post, and participate in any area that interests them. There is no collective effort to promote any particular concept. If you feel that diversification deserves more attention then start a thread to enlighten us.

well we know different setups can work, that's why there are multiple successful forex traders around here. but how would you articulate when to switch systems and back again?

You might want to monitor the equity curve of each strategy and apply a moving average to the same. When your profit crosses below the moving average it's time to fix it or ditch it.

I think its okay to have multiple setups...but do not trade multiple systems...

Usually when u day trade, u look for setups like, gaps, pennants, squeeze, box, etc, those with quick burst of pips for you to hit and run, and thats what i mean by setups.

The use of the word promoting gave the wrong meaning to what i was trying to say. English is not my native so sometimes i make little mistakes like that.

I kept finding systems that worked for a period of time, normally right towards the end of them, so a few profits then head ripped off.

So.... I've got a selection of ways the market moves / works, the trick is recognising the market type and using the correct one at the correct time, not easy.

Easy No, profitable, getting there.

At the moment, most quick dips down on volume are reversed so I'm reversing them, at other times, dips pause to trap people playing that then continue, for example.