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Mark O' Donnell
Research Analyst
February 15, 2020

Is There Such Thing as the Perfect Trading Strategy?

Every trader has thought about coming up with the perfect trading strategy. Many spend night after night trying to produce a strategy with a win rate over 90%, and after planning and tweaking it in a demo environment, eventually try to take it live.

However, what actually ends up happening is that things might start off well for the first few trades, but eventually they get stopped out. And then instead of taking the loss and moving on, they go back to the drawing board, thinking that the strategy is at fault. This continues on and on, and can eventually become enough to drive any trader insane.

Here’s the thing: the perfect trading strategy does not exist. If it did, then everyone would be using it, right? Unfortunately, many choose to ignore this fact and continue chasing a pointless path.

Solid Setups

While there is no way to have a perfect trading strategy because of how unpredictable the market is, the most important thing to learn is to understand the strategy that you are implementing, and what impact it will have.

Here are some solid setups to consider:

  1. Volatility Breakouts

This is a strong and reliable strategy that is popular and utilised by many experienced traders. It revolves around locating areas of shallow consolidation where volatility drops, and then playing the breakout of the tight range that has developed.

While this is by no means a perfect strategy, it is an option you can consider.

However there are nevertheless factors to watch out for:

  • Playing volatility breakouts against the trend: these will often have a tougher time performing when compared to breakouts that are in line with the trend.
  • Not factoring in volatility: breakout days can often close in the upper echelons of their 20-day ATR.
  • Too much risk on a single trade: diversification is key to minimising risk.
  • Using too many filters and indications: this risks reducing overall potential benefits.

They also don’t provide the following details:

  • Exit point when the market shifts
  • Where to exit (or If you should exit at all)
  • What to risk on each signal
  • Whether or not the signal has any consistency

Unfortunately, many trigger finger traders find these considerations boring. So what usually occurs is this:

  1. They buy and sell volatility breakouts.
  2. Having run out of them, they then search the markets for any situation that resembles that setup
  3. They risk 5% or more on each setup
  4. They lose a lot of money
  5. They keep trading to try and win back the money until they have none left
  1. Trend Following

This is a setup that revolves around cutting your losses when required, and letting profits run. Strategies include playing pullbacks that don’t violate the structure of a trend.

However, patience is key to the success of this strategy. For example:

You identify a new price trend starting in February 2020. You have a plan in place to quickly highlight good pullbacks that would enable you to engage the trend. The daily peak structure is in place so you make a move to “nail the entry”. Then things start to turn sour as you identify several “trouble” zones. You lose course of your initial strategy to play a pullback in a daily trend and end up engaging in a potential longer term trade.

The above example shows why its crucial to watch out for the following:

  • Playing breakouts in line with the trend: qualify your breakouts appropriately.
  • Entering with your “perfect price”: you’ll be waiting a long time for this to occur.

A common misconception amongst traders is thinking that being patient simply means waiting for the perfect price. In this instance, perfect is determined by a price pattern or a certain indicator. Unfortunately, the perfect price is nearly impossible to determine and therefore we cant stalk perfect entries.

Certain “all in, all out” strategies may work under certain conditions, but when it comes to trend trading, you’re better off looking to instead scale in and scale out. Sitting and waiting for the perfect entry will result in missing out on other golden opportunities.

Another thing to consider is confusing timelines. When trend trading, it’s recommended that traders select one timeframe to view the trend in question. A daily chart is a good example. This means that when the daily is pulling back, you’re able to drop into lower timeframes to attempt a better entry.

Confusing your timeframes and trends will only negatively affect your performance.

Embrace Imperfection

By now you should understand that by trying to create a “perfect” trading strategy, you move away from the core concept of trading itself.

As a trader you will always experience losses, but its how you manage and handle them that is important. What you should do is cut your losses as soon as you can, and take your profits as far as you can. Even if you make one unsuccessful trade, if your overall strategy is solid, your overall balance will be positive.

By staying flexible and being open to making adjustments, you will be much more confident and ready to adapt when shifts inevitably do happen.

If you would like to learn more about trading, we have guides which we publish every month here: https://blackbullmarkets.com//en/support/trading-guides, as well as daily market reviews, which are available here: https://blackbullmarkets.com//en/market-reviews

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