Often I get asked what to do when a strategy stops working overnight. My first answer is: stay calm! The second answer is to analyze the causes.
In most cases, you can assign these reasons to one of two variants: either the reasons are influenced and controllable by you or the reasons are simply beyond your control.
Variant 1: Not influenced by you
Let's first focus on the variant where you have no influence. Often, it is not the strategy itself that no longer works, but the market!
The market is constantly in motion, changing every second. What was valid yesterday might not be valid tomorrow. Algorithms change and, therefore, movements and patterns that were taken for granted. Even when the stock market is closed in the USA, trading is happening in Asia, which affects the closed markets in Europe and America.
If anything is certain, it is that nothing is certain. This quote describes the stock market best.
The consequence is that strategies, assumptions, and patterns that worked yesterday might not work tomorrow. This can happen at any time with strategies that are fixed and cannot be adjusted to changing market conditions. However, many traders trade exactly such a strategy. Although it is usually extremely time-consuming and tested with historical data, promising a certain return, it does not exclude that it will suddenly stop working. And many are not aware of that. Also, because, of course, such providers do not describe it extensively. But what does that mean for you?
Variant 2: Influenced by you
Let's move on to the other variant. The reasons are influenced by you. It is entirely up to you what you trade on the stock market and which strategy you pursue there. Therefore, you should make sure that you don't trade fixed strategies. Because you want to learn the craft of trading, develop, test, and scale your own strategies, not have others do the work for you. You want to break the vicious cycle of always relying on a new strategy when the old one no longer works and having to pay money for it every time. You want to be able to flexibly react to changing market conditions. Only then can you become predictable successful in the market by fixing the problem at its source. These systems that can be adapted to changing market conditions are called adaptive systems.
With adaptive systems, you no longer have to panic if your strategy no longer works tomorrow. You are relaxed because you know it's normal and because you know what to do. You have to readjust your strategy to the critical parameters to be successful again.
Are you facing the problem that your trading strategy no longer works? Then find out here what you should do