What to DO when your trading system STOPS working..?

Every now and then there will be a situation when once well performing system starts to fail...

What to Do?

Option 1: Painful and costly - is to keep trading & watch the system die

Option 2: Adopt a rescue approach

The Rescue Approach to a Failing System

How do you pinpoint the time when things go WRONG?

Clue 1: Your past 30 days performance and profits decline

Clue 2: And/Or your past 15 trades left more to be desired

Note, in both cases, the system hasn't failed completely (didn't die), but it stopped performing as expected.

The factors could be many:

- markets changed

- your focus & sharpness changed

- your neighbor's dog is to blame... could be anything

The point is: The change happened. What to DO?

STEP 1: As soon as you notice consistent system under-performance, start allocating less capital to this trading system.

STEP 2: If you have a second trading system (which would be ideal), switch your attention and most of the capital to it for the time being.
If you don't have a second trading system, it's time to think of one, as this will ensure that you're not keeping all eggs in one basket.
If you can trade different markets, this will give you even another edge and advantage.

STEP 3: Keep watching the non-performing system closely.
It might recover over time. But you're not trading on hopes anymore, rather embracing facts, you're trading with lesser capital & less risks, while protecting your core investment.

STEP 4: Get rid of emotional attachment to your trading system. Sometimes it's difficult to do, especially if that's the system you've developed yourself.
But beware, this attachment and inability to let go is what might leave you broke... Works for any life situation, not jut Forex... So, it's better to settle the matters straight right now.

STEP 5: Every 15 days that your system under-performs, you cut your trading size in half. This way if it's destined to die, it won't drug you with it.
Every 15 days that your system improves, you increase your trading size by half. It's simple and it works!

Note: 15 days would be a good target for short-term traders. While long-term traders might look at 30-45 days performance.

To your trading success!
Edward Revy