DON’T BE STUBBORN

One thing to keep in mind when using trading strategies is that they may
be bad, even though you think you are trading a winning system. In reality,
maybe you tested it wrong using insufficient data, or maybe you didn’t test
it at all. Regardless of why, don’t fall in love with a strategy because you
think it’s great. If it is not working, reevaluate it and don’t be afraid to throw
it out and start again. Try retesting over a longer period with more data or
over different market conditions. Maybe you only tested it in a trending
market and now you are in a choppy market, and the system just will not
work well under these conditions.

One good reason you want to know the biggest drawback and longest
losing streak is that it will help you evaluate if and when to toss out a strategy. Maybe you think it’s time to toss out the system because of four
losing trades in row, but in reality this may be normal for this system, as
may be an $8,000 losing streak at any given time. If this is the case and the
positive streaks outweigh the losing ones and you have the risk adversity to
handle these types of streaks, then you do not have to throw out the system.
You need to examine your strategies on a regular basis, so you can
determine if they are still valid. If you are losing money trading a system
and you test it over and over again and it seems like it should be positive,
then maybe you are doing something wrong in following it. You can find
this out by testing it over the period in which you traded and comparing
the results. A system is only as good as the person following it. Once you
start using discretion and ignoring signals, you will alter the results of the
system. Maybe the system is just fine, and it’s just you that needs tweaking
and discipline.