Why You Need To Use Multiple Trading Strategies

People who trade the forex market typically tend to do so using only one trading strategy, these traders are unlikely to realize there are a lot of flaws which come with using one system to trade the market. These flaws can be fixed if the traders begin  using multiple trading strategies. Over the course of this article I’m going to detail the reasons why traders only tend to trade the markets using one system and why trading with multiple strategies will improve your trading results considerably.

 

Why Do Traders Only Use One Trading Strategy ?

 

I think a large part of the reason as to why traders only trade using one system is because they believe it to be superior to other trading methods.

This only really occurs when the trader has been trying to make money from the forex markets for a long time. When traders first start out in forex they use the first trading method they come across because their knowledge on the market is so little that they probably don’t know any other strategies exist.

Over time they will become unhappy with the results they’re getting from the current strategy and begin losing faith that their method can give them the results they wish for. At some point they will start looking for a new strategy which they hope can give them better results, once they have found and adopted this new trading method they automatically assume it to better than their previous method, not necessarily because it’s giving them loads of winning trades but because they have only spent a short amount of time using the method which means their belief that it can give them the results they want has not decreased yet.

Another reason why I think traders only use one method is because the theory behind why the method works make more sense to the trader than the theories which surround other trading strategies.

For example, supply and demand zones are said to work due to banks placing pending orders at the zones because they were not able to get their entire trading position placed into the market before the rise or decline which created the supply or demand zone occurred.

I know this whole theory is incorrect, but to a trader who has been trading a strategy like price action for a long time, the theory above makes a lot more sense than the concepts which surround price action trading.

Therefore the trader may switch from trading price action to trading supply and demand zones because the reasons why supply and demand zones work, make more sense to him than the reasons given as to why price action works, this makes the  trader automatically see the supply and demand method as being better than price action because he thinks it makes more sense with how the market works.

 

The Big Problem With Using One Trading Method

 

Each trading strategy will come with its own set of assumptions as to how the market works, for a strategy like supply and demand trading, the assumption is price moves from one zone to another because bank traders have unfilled orders they need to place.

These assumptions mean the traders trading supply and demand zones will think every single movement in the market has been caused by a supply or demand zone being hit and that there are no other reason as to why the price will rise or drop other than because the market has hit a supply or demand zone.

When the traders see’s the price reverse without hitting a zone, instead of him thinking it may have reversed because of something else happening in the market, he automatically assumes it must have been from a supply or demand zone found on a lower time-frame. Sure enough when the trader drops to a lower time-frame he finds a zone which falls inline with the point where the market reversed, now he goes off thinking the zone was the reason why the market reversed this reconfirms his belief that supply and demand zones are the only thing which cause reversals to take place.

This is the main problem with using one trading strategy, it limits the number of things which you think can happen in the market, if you only trade supply and demand then any other reason for why the market can change direction is going to be unknown to you because you think all price movement is caused by a supply or demand zone being hit.

Its not really the traders fault for thinking this, its the fault of the guru’s who teach people these trading systems.

When the guru’s say things like “the reason why price turns at supply or demand zones is because the banks have placed pending orders” its impossible for the trader to know if that statement is true or not, they end up believing it because they haven’t learned about how the market really works, if they did then they would know pending orders cannot cause the market price to move, therefore saying the reason why the price turns when it hits a supply or demand zone is because the banks had pending orders placed is totally wrong.

Another reason why people are attracted to trading one strategy is because it makes understanding the market easier.

It’s far simpler to think the price can only reverse upon it hitting a supply or demand zone than it is to try to figure out all the other possible reasons why a reversal can take place.

When humans are faced with complexity their natural instinct is to make things simpler in order to develop an understanding of what is taking place, since financial market in general are some one of the most complex places which exist then it makes sense for the people who participate in them to make things as simple as possible in order to get an idea of what is actually going on.

Unfortunately making things simpler doesn’t mean you’ve made things easier, in fact by trying to make things less complex you actually make it harder for yourself because you’re not seeing the reality of the market. Saying the only reason why price moves is because of a supply or demand zone being hit makes it easier for you to look at the charts and have a reason as to why the price is moving, but by doing that your oversimplifying the market because your not believing there is any other possible cause behind why a reversal takes place.

 

Using Multiple Strategies Will Make You More Profitable

 

The primary benefit to using multiple trading strategies, is it will make your trading more profitable because of the way the probabilities of each trading strategy distribute over time.

Each trading method you use will have its own sequence of winning trades and losing trades, you don’t know in which sequence your going to have these winning or losing trades but what you do know is at some point you’ll have a streak of winning trades and a streak of losing trades.

Winning streaks are always good but losing streaks can be quite hard to deal with, by using multiple strategies you’ll find losing streaks are far less frequent because each trading strategy has its own sequence of winning and losing trades.

Because each trading method is separate from the other, it means the probabilities of the two methods do not mix, so a trade you take based up the market hitting supply zone is completely independent from a trade you take based upon seeing a pin bar, they both have their own individual sequence of winners and losers, you may lose 5 pin bar trades in a row whilst at the same time the 5 supply and demand zone trades you take end up being winners.

What this means is its highly un-probable for both trading strategies to hit upon a losing streak at the same time.

If one strategy begins to enter its losing streak, the other strategy may be close to entering its winning streak, so although you’ll be taking lots of losing trades on one strategy, on the other strategy you’ll still be hitting winners which will either increase your overall profits or at least negate the losses suffered by the method which is on a losing streak.

 

Frequent Opportunities And High Probability Trades

 

If you decide to start implementing multiple trading strategies then its a good idea if you pick one strategy which gives you frequent opportunities to place trades and another strategy which gives less trading opportunities but the trades themselves have a higher probability of working out successfully.

A good example of this would be using supply and demand zones as the primary strategy, because the oppertunities to take trades are relatively frequent, and trading stop runs using Oanda’s order-book as the secondary strategy due to the stop runs themselves being quite rare but having a higher probability of give you a successful trade.

Choosing which trading strategies you plan on using is highly important in determining if you’ll be successful trading multiple trading strategies. There are loads of different combinations you could potentially come up with, you could decide to trade pin bars on the daily chart whilst trading supply and demand zones on the 1 hour chart, by combining these two strategies you’ll be able to get into longer term trades using the pin bars while taking advantage of shorter term opportunities using the supply and demand zones.

 

Summary

 

In the end its upto you and you personal preferences in deciding which combination of trading strategies your going to trade with. Some people only like trading the daily chart, so the strategies they must pick have to be compatible with the daily time-frame, other traders have specific risk thresholds they cannot breach so if the signals generated by a trading strategy mean risking more money on each trade then the trader will have to seek out a different method to use.

Thanks for reading , if you have any questions on today’s article please leave them in the comment section below.

 

 

 

 

 

3 comments

    • ForexMentorOnline
      Author

      No no, what I’m saying Phil is its best to use different strategies on the same currency. If you trade different methods on different currencies then you miss out on the benefits trading multiple strategies gives you, if you trade one strategy on one currency you’ll have a much higher chance of encountering a losing streak than if you trade two methods on the same currency because when one method goes on its losing streak there will no way for you to get out of it, you’ll just have to take loss after loss until the sequence of wins and losses for that method die out and you begin hitting up winners again.

      If you trade two methods concurrently its unlikely for both methods to go on losing streaks at the same time, so when one strategy does go on its inevitable losing streak the other method will still be producing winners and losers, so in the end the losing streak wont cause you to lose to much money because the other method is still producing winning trades and has not entered its own losing streak yet.

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