Fix your trading system

My Trading System Needs to be Fixed

An active independent trader introduced himself to me in an email. He was in a lot of pain. He had been trading successfully during the last six months with a trading system that had taken a year to refine and test. He thought he had discovered the “holy grail” of trading. In the previous month however, his wonderful trading system has lost everything he had made with it and more.

I had some very bad news for him. I communicated this bad news in just 5 words. It is these five words that the traders who fail, year after year, do not want to hear. It is the five words that the trading gurus who want to sell you a trading system that makes 350% a month don’t want you to know. These five words will either make you very mad or wake you up to a new way of looking at your trading system. Just five words.


“All trading systems eventually fail.”

That is right. It’s the law.

All trading systems work. All trading systems fail. It is difficult to find a trading system that DOESN’T work in some market at some time. It is also impossible to find a system that DOES make consistent returns in all market conditions.

It has to be that way. Imagine a trading system that didn’t deliver pain. One that was consistently profitable. Could it be possible that only you would discover it? Could it be possible you would get rich while other market participants kept giving you money with their failed systems?


Any trading system that was consistently profitable over time would be emulated by other traders intuitively, with their systems, or with intelligent algorithmic trading programs. Just like the fit species survive eons of environmental stress, the winning trading strategies would grow and multiply in a market with a consistent behavior or profile.

The problem with everyone trading “the” winning strategy is obvious. When you buy, there has to be someone on the other side of the trade to sell to you. What happens is that as people sense or build algorithms to take advantage of a given trading profile, they need to take more risk, more trades, or anticipate the setup and execution sooner and sooner to stay competitive. In order to have a strategy that continues to produce gains, you need consistent behaviors from significant market participants.

Soon, that “perfect” strategy is disturbed by all the players taking advantage of it.

But, for the sake of argument, let’s say that ONLY YOU knew of this winning strategy. Even then, the market ecosystem will eventually shift. People will go from exuberance to fear, from confidence to self-doubt, from looking forward to the future to “catastrophising” about a post-apocalyptic world. This dramatically changes their own market decision process and makes big changes in the market profile. So, your system would eventually fail for this reason alone.

The problem with trading systems, especially successful trading systems, is that we as traders very quickly become attached to them. We think we have found the “holy grail.” There is a lot more to say about this psychological process, but for now, just notice the possibility. In fact you may have noticed this process in yourself.

If all trading systems eventually fail and we become attached to our successful trading systems, then we experience a lot of pain both financially and emotionally when the market profile shifts. It’s like one of those Zen puzzles…any belief you are attached to, the market will destroy. As a trader, it is your ability to see new trading patterns emerge that create the most potential. To do this, the mind needs to see the markets as they are without the prejudicial filters we all carry around. If our ego is attached to a trading system and its success, the ability to see new patterns emerging is difficult.

So, instead of “fixing” your strategy, study the market “profile” where your strategy excels. What indicators of that profile shift when the market changes its patterns? What strategy will work with the rolling changes in your trading ecosystem? Our Mind Muscles™ exercises are designed to invigorate your relationship with your trading strategies.

Curious about what just the right Mind Muscles™ exercise could do for your trading? Go here to see how Rogerio Amado, our Strategy and Execution coach, approaches the issues raised in this post.

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