There’s an old adage, “You’re only as strong as your weakest link.” This can be relevant in many settings from team sports to trading. Now, in sports, the weakest link is an individual; but what is the weakest link in trading? With trading being a rather extensive skill-inducing task, it can take time and effort to find the weakest link; but once found, it can drastically improve your trading. Let’s go a few of the most common weak links that traders experience and how to find out if it's one of yours.
Firstly, and the quickest test in my opinion, is the pair. Individuals such as Shawn Lucas and other traders are huge fans of the EUR/USD. While it's the most commonly traded pair in FOREX, it isn’t for everyone, and you may personally not even trade this pair. For argument’s sake, we’ll use this as the example. The EUR/USD doesn't have the range and quick movements that some other pairs have, such as the GBP/NZD. That type of movement that the EUR/USD offers isn't ideal for certain strategies. If you have a strategy you like that doesn’t seem to be working as well as you hoped all the time, attempting it with a few different pairs can improve or worsen your stats. Either way, this demonstrates the power a pair can have with a certain strategy.
If you’ve tried a few pairs out and aren’t seeing a drastic variation, we move on to the next link: time frame. Certain techniques don’t work as well when you’re looking at an hour chart vs a four hour chart. This link requires a bit more time and patience than just changing the pair because you can possibly be holding a trade twice as long or longer than you're used to. The rewards can be higher as well, though, since the trades are taking longer to mature, resulting in higher returns. For example, an SMA crossover on a one-minute chart won’t be as reliable as on an hour chart due to the fact that the quick open and close of the candles results in quicker SMA movements, and thus, more crossovers with less profit margins. On the one-hour, however, a more consistent pattern formation allows for easier-to-predict price placement within a certain period.
Time of Day
If the pairs and the time frame don't create a positive impact on your trading, then comes time of day. This one can be one of the most difficult to experiment with as many individuals aren’t necessarily like Shawn Lucas and trading for a living. If you're learning to trade or just trading on the side, changing the time in which you trade can be difficult. Yet, think of the difference in these two strategies: London breakout and Banker’s Close. The primary difference is the time in which you trade. The London breakout is a strategy focused around the opening of the London market. This strategy type can by used for other market opens as well, but has the best results at the time London opens. This is why it's eponymously named for that market. The banker’s close strategy is focused around closing time for markets. Once one market closes, the next timezone is traded off of to try and catch a domino effect. Different setups work better at certain times, so if you can switch around when you trade, you can see if your 8:00AM trading is your weak link, and by changing to 4:00PM, you create a strengthening in your system.
The final examination of strength can be some people's hardest to part with, and that is their strategy. This test can also be time-consuming to test depending on what you're using to trade. Some people like to use a lot of indicators as confirmations. If you look back on the Biggest Mistakes Beginner Traders Make article, one of the items touched upon is the overuse of indicators. Having so many indicators and waiting for them all to align can have it so that the market movement is almost complete once you enter the trade. People don’t like parting with a strategy they created, but even if you look at Shawn Lucas’ Wobble Technique and the lessons on Trader on the Street he created for the strategy, he stated it's always changing and evolving. One way to adapt your strategy without totally wiping what you did is open multiple charts and incorporate parts of your strategy on each. This way, you can see everything you had but look at when certain parts trigger entries while other parts don't. Finding the common factor in each can improve your strategy and show which part of the weakest link was the weakest so that a small change can be made for the total betterment of your trading.
Of course there are copious other reasons your chain could look like it's failing and ways to find the link that is causing it, but these are the most common that traders face. If none of these are the apparent root cause of the issue, you can try two at once. Maybe trading with a certain indicator at 2:00 PM didn't create any difference than at 8:00AM and using a 15-minute vs a 1-hour didn’t change anything at 8:00AM either. In this case, maybe switching from a 15-minutes to 1-hour at 2:00PM will do the trick. Any combination of these four changes can be incorporated and tried. Something has to be the cause of a downfall in trading since individuals like Shawn Lucas make a living off of this. It's just finding the specific combination of them to take off.