Strike a Perfect Balance Between Systematicness and Adaptability

8 oct.

Successful, consistent trading in the long run demands a delicate balance between two key realms: systematicness and adaptability. You can neither be fully automated/robotic nor completely agile and without a plan. Radicalising either approach could lead to catastrophe.

Thus, we must blend these elements into a cohesive strategy.

The Notion of Systematicness

1) Risking 1% of the Total Capital per Trade
You must remain consistent regarding your risk exposure per transaction. Defining your risk appetite beforehand and strictly adhering to these principles is crucial. Being flexible with this factor increases the likelihood of becoming overconfident and over-risking at times.

2) Trading Only One or Two Financial Instruments
Every financial security has its own unique market dynamics. Sticking to one or two pairs allows for deeper understanding without overloading your watchlist with dozens of instruments. By taking a selective approach, you can develop a closer connection with those instruments and better understand their price behavior. In our practice, we focus on two pairs: EUR/GBP and USD/CHF.

3) Monitoring and Executing Trades Based on Two Timeframes
Timeframes are interconnected. A daily candle comprises six 4-hour candles, and each 4-hour candle includes four 1-hour candles, and so on. By focusing on just two or three timeframes—one for direction and another for entries and target settlements—you cultivate a more minimalistic approach and a deeper understanding of price behaviour.

4) Thoroughly Journaling Every Transaction
Journaling every trade, extracting key takeaways, and implementing optimisations is absolutely critical. A systematic approach to journaling helps improve your skills and understanding of the market over time.

5) Establishing Psychological Consistency Through a Set of Rules
Your mental state directly affects your trading performance. That’s why it's often said to avoid trading when emotional, tired, or mentally clouded. Establishing and adhering to a set of psychological norms is crucial to maintaining consistency and avoiding emotional trading decisions.

6) Controlling Leverage and Margin Use
Similar to risk management, using excessive leverage and high margin per trade can be detrimental. Define your leverage and margin criteria in advance and stick to them rigorously to avoid catastrophic losses.

The Realm of Adaptability

1) Entering Trades Based on Ongoing Development
If you adopt a fully static approach to trade execution, this rule falls under systematicness. However, if you prefer to read a chart like a book and make decisions based on price behavior, you're taking an adaptive approach. This means you trade what you see, not what you hope for. You must assess how price is developing and interpret its signals before taking action.

2) Conducting Early Closures Based on Market Build-Up
Optimism can sometimes cloud judgment when setting target settlements. However, it's essential to remain flexible and know when to exit if the original plan becomes invalid. Recognising when to abandon a trade is key to protecting profits.

3) Setting Realistic Target Zones Based on Price Development
Some traders aim for the same risk-reward ratio (e.g., 1:3) on every trade. However, it is often more effective to set realistic targets based on technical analysis, such as previous key levels or significant areas of interest. This flexibility allows for better alignment with current market conditions.

4) Placing Relatively Wide Stop-Loss Levels to Account for Potential Liquidity Grabs
While some traders use a static stop-loss value, others take a more flexible approach. By adjusting the stop-loss based on price development, you can avoid liquidity grabs and give the trade more breathing room.

5) Refraining from Entering Positions
When Indecisive Adaptability also applies to your psychological state. When you feel unsure or indecisive, it's often better to stay off the charts, allowing time for clarity and a fresh perspective before re-engaging with the market.

6) Making Optimisations Within the Trading Plan
Over Time Trading success requires continuous improvement and optimisation. There’s always room for refinement, and adapting your plan as you gain experience is essential for long-term growth.

Of course, every trader has his/her own approach within the market. In our case, we aim towards creating a feasible bridge between two universes - systematic and adaptive - and preserving consistent profitability in the long run.