Should You Change Your Forex Trading Strategy

  • August 27, 2023
Should you change your forex trading strategy

Retail forex traders are swamped with information, trading strategies and traders showing giant withdrawals every day on social media. When you’re struggling to reach consistent profitability within the markets, it can be hard to stick to one strategy and shy away from all the external influences trying to persuade you to try the next strategy. So, should you change your forex trading strategy?

You should only change your forex trading strategy if it is proving to be unprofitable over a long period of time, or throughout a back test. One trading day or week should not be enough for you to abandon your strategy and try something new.

In this article, we’ll consider the risks of changing your trading strategy, the benefits and when you should look at completely overhauling your trading strategy. So, let’s get into it!

Is It Time To Change Your Forex Trading Strategy

Knowing when to change your trading strategy can be incredibly tough. Slow trading months or quarters, coupled with watching other traders succeed, is usually a great motivator to abandon your existing strategy and learn something new. However, this isn’t always the best port of call. In fact, generally, moving from strategy to strategy does you more harm than good, constantly resetting your experience of trading a certain strategy and bringing you back to the level of a beginner trader. With that being said, at a certain point, changing your strategy may be the right move, if all testing and options have been exhausted, and a strategy is proving to be too risky or unprofitable.

The Risks Of Changing Forex Strategy – Shiny Ball Syndrome

There are risks associated with changing your forex trading strategy. This is primarily due to the concept of ‘next shiny thing syndrome’. This is essentially where traders think the grass is greener with another trading strategy and will constantly move from one strategy to another, never really perfecting any of them and spending years moving around, never becoming profitable. This is the boat that most forex traders are sadly in, and they rarely make any tangible progress. Each time a trader changes their strategy, their experience with their main trading strategy resets back to nothing. Although they still retain knowledge of the industry and markets as a whole, they’re still being ported back to being a beginner with the strategy they’re trading. This ultimately leads to a huge amount of human error, frustration, and resentment towards trading as the trader will see others succeeding, but them not succeeding with a strategy.

We’ve seen traders hop to a new strategy, then back to their original strategy multiple times after realizing that their original strategy was perfectly fine and worked within the markets. Traders that follow this sequence are often in a circle of doom, constantly searching for a perfect trading strategy that doesn’t exist. There is no perfect trading strategy!

The Benefits Of Changing Forex Strategy

However, changing a forex strategy may be incredibly beneficial, if your strategy is proving to be unprofitable. Adopting a new strategy may lead you to becoming profitable, becoming more confident in your trading and hopefully ending with you becoming a prop firm funded traderWe’ve seen traders cycle through 5-10 trading strategies before landing on the strategy that suits their personality and is actually profitable. It’s important to bear in mind that the majority of trading strategies being sold online by inexperienced retail traders will not be profitable. If this rings true for the strategy you’re trading, no amount of psychology work or risk management study will get you to a point where you can consistently pull profits from the financial markets. Therefore, changing your strategy might be the right move! However, it’s important to exhaust your options first, to avoid wasting your time and setting yourself back months in the markets. Forex trading strategies do stop working over time, so there could be a benefit in changing strategy, if this has happened to you!

The Perfect Time To Change Strategy

With all of the above being considered, there will come a time when it’s the right move to change your trading strategy. You need to be incredibly sure, however, that this is the right thing to be doing before you look to change your strategy.

So, what should you do before hopping to a new strategy?

  1. Back test your trading strategy to 500+ trades
    Your trading strategy should be back tested to give you a sample size of over 500 trades, in an ideal world. Obviously, this is a huge time commitment, but not as much of a time commitment as learning a whole new trading strategy. This, if done correctly, will objectively prove whether your trading strategy is profitable or not!
  2. Demo trade your strategy
    If your strategy is profitable, according to a back test, you should trade this on a demo account. The reason for this is it’ll highlight whether you (the trader) are the issue here, making mistakes when trading your strategy! If the back test proves it’s profitable, it should be profitable when trading a demo account.
  3. Improve and tweak your risk management parameters
    The difference between a profitable and unprofitable trading strategy could be as simple as your risk management parameters and plan. For example, when you’re moving the trade to stop loss at breakeven, how much you’re risking per trade, whether you’re leaving trades open overnight etc. Testing various risk management strategies should lead to increased profitability and reduced risk within the markets.
  4. Create a rule-based trading plan
    Ensure that your trading plan or strategy is completely rule-based, before switching to a new strategy. The trading strategy should remove the majority of human bias and consideration – your trading plan should give you a fixed ruleset to follow and execute.

If all of these 4 steps have been completed and your trading strategy is still proving to be unprofitable over the long term, it is time to learn a new strategy!

It’s also worth mentioning that if you just dislike a trading strategy, or it does not suit your lifestyle/time commitments, that also constitutes a move to a new trading strategy. For example, many scalpers and day traders move to a swing trading strategy when they realize they don’t have the time to dedicate to trading each day. This is not shiny ball syndrome, it’s a smart move!

In Summary – Should You Change Your Forex Trading Strategy

In conclusion, you should change your forex trading strategy if it’s unprofitable over a large back test, even with a very rule-based approach. This indicates that your strategy truly is not profitable and should not be traded with live capital or prop firm accounts! However, if your trading strategy is even slightly profitable, it’s time to knuckle down and stay with the same strategy!

 Are you looking to trade your strategy on a prop firm funded account? Work with Lux Trading Firm today!