I was honestly going to write something today about the effect of the Volcker rule, but to be fair, having got half way through the second paragraph, even I was bored, so instead, I thought I would wind up the thread from yesterday.
It`s been very interesting and informative, reading your responses about the use of technical analysis (TA). Few have completely dismissed it`s use and relevance, and most seem to use and interpret TA in a way that they get on with, and in a way that they believe enhances their trading. By the way, hats off from me to those amongst you who have devised their own take on TA, good on you – but don`t keep still, keep looking and testing new ideas and combinations.
My final thought on the theme is about exactly that ie. not keeping still in this area. My experience is that whether you find an `off the shelf` method of analysis that works for you, or whether you develop your own, there are going to be times when whatever it is, it doesn`t work! A methodology you have used successfully and profitably for the last 1/3/6 months will at some stage start to cause you losses. This is the difficult part. How long do you continue trading with the same set of parameters when clearly something has happened to change the effectiveness of that analysis? Do you think (hope!) it must come back and just continue apace, if so, for how long? Or do you shut down and or close that particular rationale for the moment and look for another completely different way to trade?
My answer is two-fold. If you have a single strategy of some type the secret often is to analyse and chart past performance, and you will find that any successful style will have an ebb and flow attached to it. It may be possible to detect `warning signs` in performance that typically can alert you to an oncoming phase of loss making signals, and at that stage, you withdraw that particular mode of trading, until such time as it comes back into phase. Ideally, and this is the second part, you will have alternative strategies to replace the out of phase idea, but I recognise and know only too well just how time consuming and all encompassing this can be!
The conclusion is, and this is true for most types of trading, that for whatever reason, if you are on a loss making run, try and identify and recognise it as soon as possible, and don`t lie to yourself about how unlucky you were! Either get out for a while, re-stock and analyse what has changed, or institute a new methodology – not one born out of failure, but one specially prepared for such an eventuality.
Anyway, thanks for your many and varied thoughts. As usual, doing the most difficult thing – in this case, keeping a record of, and analysing the actual performance of your chosen style – is the right thing to do, and study of this really can help to minimise those bad times which we all experience.
