The importance of adaptation in forex trading

Every forex trader dreams of finding the ‘holy grail’ trading strategy which produces consistent profits and guarantees to make a trader successful in the shortest time possible. Whilst it is not impossible to find such a strategy, it is very unlikely that it will be successful all of the time and there will almost certainly be period when it does not perform and generate profits. The reason for this is that trading systems and strategies are rigid by nature and comply with a fixed set of rules. This is part of what makes them successful and allows them to trade the markets robotically. However, it is also often their downfall as they have limited ability to adapt to different market conditions unless the trader can recognise when the strategy should not be applied.

Different market conditions affect forex trading strategies

The skill in being a successful forex trader is precisely the ability to see which strategies are suitable for different market conditions. The ability to adapt to these is the single most important element in being consistently profitable and also a reason why lots of new forex traders become disillusioned when there trading success begins to nosedive. Many of these will have traded profitably with a strategy, after extensive back testing, only to find that they are experiencing larger drawdowns after several months of success. Whereas consistent profits should indicate that a trader is doing well, when losses also become consistent, a temporary change of approach is likely to be needed.

Many of the most successful traders and authors of forex trading guides point out that they have an ‘arsenal’ of trading tools and strategies which they use depending on market conditions. This does not necessarily mean that they have two completely different methods of trading, although many will have more than this, but that they can see when adjustments need to be made, such as lowering or increasing take profit levels or switching to a different currency pair altogether. Although it is fairly simple to say that these master traders have years of experience to make these adaptations throughout the trading day or month, the principle of recognising when trading is not working can be used by both new and experienced forex traders.

Recognising that a forex strategy is not working will lead to success

Recognising that there is a problem with a trading strategy and taking the time to consider why it has performed during back-tests but not in the live markets is an important step. A lot of new traders will feel that this is down to their luck, which is not correct. The only way to resolve this will be to look at all of the elements which affect the trade, including the broader market. Asking some simple questions such as whether the market trend has changed since completing the successful back-testing, whether the profit to risk ratios are correct and, crucially, if trading with real money has affected your trading technique, are important to analyse the problem. Looking at how these elements can be adapted to return the strategy back to being profitable sets a course for successful and consistent trading.


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