How to improve your trading strategy? Work on specific parts. Here’s how

How to improve your strategy? Work on specific parts.

Here’s what I mean.

You can take part of your strategy, backtest and improve it.

A quick example.

My best trades come from reversal moves. I know that R2, R3, and S2, S3 lines from Pivot Points, especially weekly Pivots, can work a strong reversal zone. In the past, on many times I was right but my trades haven’t reflected that. There was no specific reason for that. Sometimes:

– my stop losses were to tight and I was stopped out before the main reversal move
– my entry was too late and the whole risk-reward ratio was shitty and the trade was hard to manage
– my take profit targets were too far because I was hoping for a change in trend direction and whole new move so my entry was ok but I was not profiting from it the way I should
– and so on

So I was making many different mistakes when I was taking reversal trades around these R2, R3, S2, S3 levels.

I started backtesting different modification to my strategy specific to these entries. Eventually, based on many tests, I managed to write down the best set of rules for entry, stop loss and take profit targets. It took me some time and testing to achieve that but I really was able to improve in that area.

Why this approach works? If you backtest your whole strategy then you’re probably trading many different scenarios – breakouts, reversals, trend movements and so on. That’s fine. Still, as a result, you get information about your trading plan’s performance as a whole. Maybe there are elements that you can improve? Are you taking too big loses during breakouts? What about trades based on popular patterns?

If you take only that one specific thing from your strategy, it will be so much easier to improve that.

Think about your trading and trading strategy in blocks. As I mentioned, you can classify your trades into specific blocks (types of trades) such as:

– trades in a trend direction
– reversal trades
– trades based on chart patterns
– trades based on price action
– trades based on a signal from the specific indicator
– many others

Write them down.

On which of them can you work? When you fill comfortable when you place an order and when you are not so sure?

Backtest these specific blocks. Try to write an entry, exit, stop rules for specific block/type of trade. Test different ideas. What will happen when you trade a specific setup with wider setup? What if you add some confirmation?

That way you will start to work on your trading strategy from the bottom, from the smaller parts of your strategy. It is much easier to improve small, specific parts of your strategy than to work on all elements of your strategy at the same time.

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