The 3 Steps to Trading a New StrategyDec 10, 2021
For a trader, there's nothing more exciting than finishing up a book, coming home from a conference, or watching a video and coming away with a new strategy. Especially one with a proven edge, where all the backtesting is done for you.
So then you should just start trading it, right?
Not quite. Here's the three steps I follow when I'm deciding whether to add another strategy to my tool belt.
1. Observation - I'll spend at least a couple of weeks observing the strategy in real time to get a feel for how often it sets up, and the movement within various time frames. (Does it give an indication of a good trade quickly? Do I need to hang out in the trade for awhile?)
2. Paper Trade - The most important step. It's not enough that a strategy works. Does it work for me? Does it fit my mentality and who I am as a trader? Most importantly, does it take away from the strategies that I already trade successfully? If the new strategy is a swing, I'll trade it out of my spare paper trading account. If it's intraday, I'll write down my entries on the pad of paper next to my mouse.
3. Integration - At this point I'll ease the new strategy into my day to day trading, starting will very small position sizes. A few weeks of results will start to show me how much of my attention should go to the new strategy. Does it become one of my go to's? Something to trade when the markets are stuck in a range? These are just a few of the questions I want answers to before I scale up.
This can be a 3 week timetable, 3 month timetable, or even longer depending on how different the strategy is to what you already trade. There's no hurry. Be quick to learn new systems and slow to implement them.