| Trading Strategies - Why The Logical Strategies Pay |
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| Written by Gnifrus Urquart |
| Sunday, 08 November 2009 23:07 |
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One of the things I have noticed during the 20 years I have spent either actively investing in various strategies, or trialing them, is that the ones which make logical sense usually are the ones which work best in real life.
One of the things I have noticed during the 20 years I have spent either actively investing in various strategies, or trialing them, is that the ones which make logical sense usually are the ones which work best in real life. There are so many investment strategies I get offered I could probably spend 2 life times working through them all. And a small fortune working out which ones don't work. What I have found though is you can short cut this process simply by looking logically at them. Quite often when you robustly go through the logic of an investment strategy you will find holes in it. And big holes too, holes that will make you lose your money. Strategies generally make sense. The problem I am talking about is not about making sense, it concerns completeness. When these strategies do not cover all possible scenarios, you can be left in a position where you need to make decisions that are not following the strategy. The amount of judgment you can bring to such forced decisions depends on how close this situation is to others covered by the strategy. In a worse case scenario, it could be a complete guess. If a trading strategy leaves you guessing, when you make these guesses, you are gambling. A proper trading strategy will leave no contingency for guesswork. It will cover all scenarios taking human error out of the equation. It will be systemised and complete. The other problem with this is that no matter what happens to your returns from that point, you will never know if it happened because the strategy worked or because of the guess you just made. This also can create problems as it must impact your confidence in the strategy. If your confidence is impacted, this may further cause you to divert from the strategy in other circumstances, exacerbating the problem. So if you are thinking about trading a new strategy, short cut experiencing some pain and loss. Go through the logic of the strategy in a robust and thorough manner. Are there scenarios you can see, which the strategy possibly does not cover? If so, try and get answers for those scenarios. If you can't get answers for them, personally, I'd avoid the strategy. Lets face it, going to the horse races is much more fun :) And once you have covered off every situation you can think of, always remember to execute a preliminary trading exercise without putting money down. Spend a few months running the strategy in spreadsheets before you trade with money. You'll be amazed at the real life situations which come your way which you'd never have dreamed of. And you will thank your stars you resolved these issues when you had nothing on the line. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Professional Gold Coast search engine optimisation services can be hard to find. There are too many charletans in the industry. For all Gold Coast internet marketing services, go with the most trusted. Also published at Trading Strategies - Why The Logical Strategies Pay. |
| Last Updated on Tuesday, 19 October 2010 16:41 |