What happens when you have a flawed trading system

So most books/posts on forums like this tell you to develop your own trading system that suits your own personality. That's fine. What happens when you develop your own rules but they are flawed and if you follow them you start to make losses everytime?

That's the problem with developing your own rules cos you might not know it is flawed and if you followed them you would be making unneccessary losses.

Losses are part of the experience. The learning journey is a long process. You can't skip any step ...

If you start to make losses every time, it's perhaps time to "go back to the books" in search of a whole new approach, rather than just trying to tweak and refine one's current approach?



That's what backtesting and forward-testing on demo are for; but first one requires education, so as to be able to judge what kind of things to backtest and forward-test. Which is part of the reason why almost all traders who are actually making a living from it have first amassed a few thousand hours of education, screen-time, testing and analysis - skills that have to be acquired gradually through experience.

Established, accredited, peer-reviewed textbooks (such as Tharp's Trade Your Way to Financial Freedom, and Chande's Beyond Technical Analysis) are a tremendous source of information, both about "parameters likely to be worth examining and understanding in trading system development", and (especially with books like Harris's Profitability and Systematic Trading) about learning the underlying statistical and probabilistic concepts necessary for appreciating how to apply them to the market, and how to test and refine one's money-management.

Without initially accumulating this knowledge, either from books like those or from another equivalent, recognised source, the deck is truly, madly, deeply stacked against any individual trader ever becoming successful.

That's not "good", or "bad": that's just "the way it is". These are the realities.

None of us was born with these skills: we had to acquire them, one way or another.

Remember when you were learning how to ride a bike?

Yeah its same with trading... a few bumps and scars but if you stick with it you will be ok...

Follow Xela's advise.

Is this what you're waiting for?

You have it backward. The point of developing your own system is to have intimate understanding of your rules.

If you are wrong every time, then the reverse means you are right every time. What would be the result of trading against yourself?

...a psyquiatric disorder?

If you have a strategy that produces losses every time, and I mean meaningful consistent losses at least 3x the cost (spread+commissions) - you have a VERY good strategy. Just reverse the rules and you will make money every time........But I really doubt you have such strategy...
If you exclude the cost, developing consistently losing strategy is just as hard as developing a winning one.
Also you keep in mind that fully mechanical strategies with fixed rules, are very unlikely to produce profits in the long run. Market dynamics and fundamentals are changing constantly, and you have to evolve and adapt......that's the only way to survive in the long run.
The principles of Darwinian evolution and Survival of the fittest applies to trading 100%.

It's not the rules that are flawed.

Any system based on trading rules will fail: there are no rules

every system has its own flaws, it just needs time to be exposed...
but a flawed system does not mean it is not profitable.

The Forex market is constantly changing. It has the element of chance. Market conditions may look similar, but they are never repeated exactly.
The system, which has been successful in the past year, will not necessarily work well in this year.
Need some time to accumulate experience needed to trade successfully and track deals.
So yes, the loss is a part of experience. Make right conclusions and change the strategy or approach to it.

When you have a flawed trading system, its best that you stop trading on your main account, switch over to a demo account and spend time to workout a new system

So you have a set of rules. That's good. Now look back at your recent trades. There are a few possible situations:

You weren't really following your rules.
Maybe you thought you were at the time, but if you look back and realize that you really weren't following your rules, then you need to try and figure out why you couldn't stick to it.

1. It may be that this strategy is not a good fit for you. Just because you made the rules doesn't mean they're actually suitable for you. For example, maybe you have a breakout strategy, but in fact, you are really uncomfortable buying after price shoots up.
2. Or maybe you weren't following your rules because you've basically set yourself up for failure. For example, maybe your strategy is a very short-term strategy based on the 1-minute timeframe. That requires spending lots of time in front of the screen, but if you have a day job and you're staying up late spending hours in front of the screen, then you'll just become exhausted sooner or later. That's going to be a very hard strategy to follow if you work full time.
3. Or it may be that you simply haven't developed the discipline to follow your rules. Maybe you're impatient or maybe you hesitate too much. Maybe you have too many distractions. There might be some simple things you could do in your routine to help you stay focused and disciplined. (e.g. getting enough sleep, closing all other programs and devices while you're trading, etc.)

Your system just doesn't work.
Maybe you were following your rules, but it just might not be a profitable system. There are many of those! Maybe your approach suits your personality, but if it simply doesn't work, then you won't make money. If the strategy doesn't work, then of course you have no choice but to change your strategy. You might not have to completely abandon it, though; it might be possible to make some minor adjustments that turns things around for you.


You haven't adequately tested your system. (You have no confidence in it.)
You must have some reason for choosing the rules that you did. Do you know that they work? Have you tested your system (either through backtesting or forward-testing)? Do you know how long a typical losing streak lasts in your system? Maybe the losing streak you're experiencing is actually rather normal. If you haven't tested your system, though, then you will have no confidence in it, and you will be likely to abandon it during a losing streak, even if that losing streak is normal.

If forward-testing is your only option, and if you haven't already done that yet, then that is what you have to do. But then, as you place your trades and watch the outcomes, you must think of it as testing, not trading. It is foolish to expect that you can take an unproven system and just start making money with it. Until you've seen it work consistently, think of yourself as a researcher, not a trader. To help you mentally cope with this, make a research plan. For example, you might set aside a certain amount of money (or demo money) and a certain amount of time, and then just follow your rules for the whole time and don't pass any judgement until that research period is over. e.g. You might say, "I will trade these rules faithfully for 3 months." Then for those 3 months, you just have to keep in mind that you really don't know what will happen; you are still researching. You need to give it time to work through different market conditions, and to experience losing streaks and winning streaks. If it's only been two weeks and you're account is down, don't give up. That's not what you planned to do. You planned to test it for 3 months. So do that! Then at the end, you can analyze the results and determine if you have a viable strategy or not.

Start from the 'beginning'.

What is a 'flawed' trading system? Do you know what is 'flawed'? Are you competent enough to identify the flaws? Of course you know, right? Wrong, most peeps will tell themselves they have the knowledge to recognise flaws. Fact is these peeps really believe what they perceive to possess the required knowledge to be true. But the reality is they don't have the required knowledge. If they do, the flaws should have been identified and removed. This is an illusion of knowledge that clouds the mind when there's none. This is the biggest flaw (elephant in the room) and not the flaw in the systems which stems from this. Unless we recognise this state of ignorance or lack of knowledge we will remain blind and oblivious to whatever flaw that exist and continue to do so. Don't like to hear this kinda stuff, right? Too bad, there is no starting point for real change.

When your system has produced favorable results, you have proven to some degree that you don't have a problem with your market analysis.

You might have an execution issue (issue with the trader)

Market conditions may have changed (indicating your system only works under a specific set of conditions)

System development ain't easy and most give up on a system too early.

That is not necessarily correct.

Sure, there's the element of trader execution and most aren't "real enough" with themselves to consider that the market isn't where the problem is.

Generally speaking though, once you've defined the results you desire, and you find yourself consistently achieving them by following your own edge, this is a decent indication that your market analysis is correct to SOME DEGREE...as long as you're real enough with yourself to recognize where you, the trader, may have not followed, executed poorly, etc..

Faulty analysis can still produce favourable results.

Some call it luck.

Is it faulty analysis or a failure to recognize a shift in the market? (absolutely no argument intended...kinda fun reading another's perception and allowing it to challenge my own, see how it syncs, etc..)