Forex Mistake #72 - System Hopping got me Broke

Why System Hopping could get you Broke?

When traders start out in the Forex markets, they will often look to forums and discussion sites for systems to use. The Internet has a seemingly unending parade of systems and as a result it is often a bit overwhelming for the novice. The sheer amount of choices means that there is always the possibility of “something better”, and this leads to an expensive practice known as “system hopping.”


How System Hopping could get you Broke – Common and Expensive

“System hopping” is essentially going from one system to another in an attempt to find a profitable strategy for trading Forex. While the idea of looking around for various trading strategies makes sense, the reality is that very few traders will give a trading methodology the appropriate amount of time to prove itself worthy or not, and will simply move onto other systems in the never ending search for profit. This can lead to a trader giving up on a perfectly valid trading system, only to move onto one that isn’t as robust. The biggest cause of this is impatience. The new trader will look at the Forex markets as a possible personal ATM machine, something that they can withdraw cash from at will. However, not all trades will be profitable, and this is true for any trading method you choose to employ. The novice traders will often get overly concerned after one or two losses, and as a result, they might walk away from a system that is still performing in a profitable manner overall. Time is what tells the truth and you have to let a system prove itself over time. After all, there are a lot of potential factors that can come into play when you are talking about a specific Forex trade. There are a lot of different unanticipated possibilities, and that’s why you have to evaluate the long term performance when it comes to a trading system. Remember, you are trying to put the statistics in your favor when it comes to placing a trade, and with this you need a fair representative sample in order to have decent results. You obviously wouldn’t want to take a medication that had only been tested on two people, so you certainly cannot expect to get the most reliable results after just an attempt or two with the system in question.


If You Don’t Know It Works – Why Are You Risking Money At All?

This is one of the biggest killers of new trading accounts in my opinion. The novice trader will make the classic mistake of placing live trades with these systems, and as a result the couple of losses cost money, making this an emotional decision as well. At this point, they often will be desperate to “get that money back”, meaning they will want to try to make the next magic system earn it for them. The problem is that sometimes, new traders don’t even understand completely the system they are trading and even if they do, there’s always a degree of discretion involved when it comes to whether or not a technical signal on the chart should be taken. And one more thing: does the system tell you when a major economic announcement is coming? At that point, do you go ahead and trade the position anyway? There will always be a need for the trader to intervene on one level or another and that’s why the trader needs to completely understand what makes the system work and when it isn’t appropriate to use it. You can achieve that free of stress and without risking any money by using a demo account to thoroughly test systems. For example, if you have a system that loses money after a couple of dozen trades, there is no loss at that point as you aren’t using trading capital. On the other hand, there are systems that will take some time to be profitable, but might be very reliable over the longer-term. By using the demo account to find out, you don’t have the added pressure of losing money while figuring out what kind of system you will use. This allows the system to “simply be”, and keeps emotional interference away.


Conclusion - Let grasshoppers do all the hopping

Trading systems are not like cakes. With a cake, you can take a bite and you’ll know if it tastes good or not, but a system must be traded for a reasonable time before you know if it’s profitable or not, you can’t just take one trade and decide on its overall profitability. Furthermore, if you trade a system for a long period, chances are you’ll get better at it and your trading accuracy will increase. Changing systems everyday makes you shallow as a trader and you’ll end up going through 50 systems without mastering any. Settle on one, learn it well and stop hopping.


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