Every trader does it, it’s part of the trader’s education and path to becoming successful. But do you really understand why you are trying system after system, indicator after indicator? There’s usually nothing wrong with your trading system, it’s your understanding of how that system will play out that is often at fault.
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Video Transcript
Okay, so why are you system hopping? This is a problem that virtually all traders go through in their lives and their trading careers and the main reason we system hop is because whatever we’re doing right now hasn’t made us a profitable trader. So this is obviously rubbish and we’re going to the next thing because that holy grail exists, that indicator or that system out there that makes you a profitable trader. It’s out there somewhere, I’m going to find it. Unfortunately the Holy Grail is not an indicator or a system. The Holy Grail, if you want to call it that, is basically you as a trader embracing probability and creating yourself an edge. There is no system out there that is going to do this for you and no indicator that is going to do this for you. It’s a process of discovery and finding out what your edge in the market is going to be and embracing the fact that this market Forex, indices, futures, stocks, whatever you want to trade, it is all about probability.
The spreadsheet I showed you in the last video, if you haven’t watched that one yet, looking at what a job of a trader is, showed you that whatever the risk reward ratio you choose and whatever your system’s strike rate is, it produces a probability of giving you an outcome. When you enter a trade, when you press that buy and that sell button, price is going to go up or it’s going to go down and it’s going to move through time and it’s going to continue to go up and down and it’s either going to hit your TP or it’s going to hit your stop loss. Okay all we’ve got to do is put the probabilities of it hitting our TP in favor of the probabilities of it hitting our stop loss and it doesn’t matter which strategy you choose whether it be the trading stochastics, moving averages, pure price action, it really doesn’t matter. As long as you know what the probabilities strike rate of a system is and you can set the risk to reward ratio to be high enough to achieve a profit that is literally all you have to do as a trader. If you haven’t watched that video yet go back and watch the video about what a trader’s job is and that spreadsheet for me was a massive eye-opener when I found it and it explained to me visually what I need to achieve as a trader to achieve a specific financial goal. Okay so the problem is either you do not understand the probabilities with the system that you’re trading or your system does not fit your personality or mindset to trading. Now what I mean by that is you have little people in your head and you have to keep them happy.
When you press that buy button or that sell button what you’ve got going on in your head is an expectation of making money. You see profit on the table and you want to take it. The little people don’t understand the maths. We just looked at, in that spreadsheet, we just looked at the maths and we know that if we have a 50% strike rate and we have a 1.5 to 1 risk reward ratio we’re going to make money. What the little people in your head are doing is when they see a hundred dollars profit in the account in the P&L they’re thinking we need to take it we’ve made money we profited from this trade and that is the problem you’re not letting the probabilities of your system play out. There’s nothing wrong with the system at all. Your mindset is just wanting to take that money too quickly.
Now if you’re finding yourself taking swing trades on H4 and daily timeframes and you’re looking at the charts every four hours to see where prices got to you’re trading the wrong time frame. If your psychology and your frame of mind means you want to be watching that P&L. You need to be a day trader or a scalper. So you need to decide if you’re a calm or a panicky trader. So if you want to be in and out of the market within hours or at least within the same day, you’re going to be a day trader or a scalper. Or if you can play the long game on H4 and you can actually hold it, then you can be a swing trader. But until you know this you don’t know what time frame to trade or what system suits you. And this is part of the basis of system hopping is we don’t understand the probabilities of a system and we don’t understand whether that system fits us personally as traders and unfortunately the only way to find that out is you need to try lots of systems, lots of indicators and trade on different time frames to find out which one suits you the best.
Nobody can tell you that. This is why so many people give up or fail at trading because they don’t know what type of trader they are or what type of trader their psychology or their mentality is suited to. When you are system hopping, you are expecting to find a system that works X% of the time and returns X% per month constantly, as I said earlier on in the video. So if we’ve got a system expectation of 80% and $5,000 a month, for example, we will be find that on Forexfactory by looking at mentor websites by buying courses by looking at various indicators and we’re looking for the 80% $5,000 a month constantly thing that doesn’t exist we call it the holy grail it isn’t out there now if you find on Forex Factory, it may well return a 70% strike rate on average over 12 months for me and it may return me on average per month $5,000.
But that doesn’t mean it’s going to do it for you. The people that come up with systems and strategies like the sort of the tweaking I’ve bent this to work for me as a trader. I like to trade in the day, I like to be a day trader, I like to be flat in the evenings, so therefore I trade on the M15 timeframes because that suits me personally. There are other people that trade on the H4 timeframe, they swing trade using the weekly time frame as a directional bias. You have to do your own maths and you have to see if a system fits your spreadsheet and your trading style. And until you understand that you will continue to system hop. Every time you look at a system from now on, whether it be this one or anything else you find on Forex Factory, the first thing you’re going to do is ask what the expected strike rate is of that system. You’re going to put it into that spreadsheet and you’re going to ask what the risk to reward ratio is on average. And you’re going to work out whether or not that system fits your trading style. The hunt for the holy grail is not about finding the right way to trade, it’s simply about understanding how trading works mathematically and with probabilities produced by your system’s edge.
There is no Holy Grail indicator. There is no Holy Grail system. Stop looking for it.
