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Trading Education Posted by Team Topstep June 24, 2021

When to Change Your Trading Strategy

When should you change the way you trade? Jack and Dan offer their takes on how to tell if your trading strategy isn’t working, and the first steps towards making meaningful changes. They also talk about the news in crude oil contracts and Microsoft’s recent $2 trillion dollar valuation.




Changing Your Trading Strategy to Become a More Successful Trader

Today on Limit Up! it’s all about trading strategy, evaluating which types of trading work best for you to become a more successful trader. Dan and Jack talk about why changing your strategy is vital, and how you shouldn’t make huge changes to your strategy. It’s more effective to make small changes, one at a time to figure out what’s going wrong. Treat your trading strategy like a scientific experiment; change one variable at a time. 

But before they get into the main topic, Jack and Dan discuss some of the breaking news in the markets. Dan has his eye on Crude Oil Contracts, which are coming up on a 32 month high. The price is on a 14 month upward trend since last April, and Dan thinks it could be primed for a bang. “There could be a huge, huge chance that   this market could accelerate if we get above $75.”

Jack has his eye on the “4 Comma Club,” the colloquial name for companies valued at over $1 trillion. While Facebook is primed to enter the club soon, Jack is more surprised with the news coming out of Microsoft. They have just surpassed the $2 trillion mark. The hosts talk about where they think Microsoft’s value comes from, and how astronomically high their valuation is. To put it in perspective, “if you were to spend $40 a second it would take you 289 days to spend a billion dollars… if you were to spend at that same rate… it would take you 792.5 years to spend 1 trillion dollars,” explains Dan.

Recognizing the Need for Change

Focusing on the main topic of this week’s episode, Jack and Dan share why having a strategy is vital to trading well consistently. “Without a consistent strategy you’re just throwing darts,” says Jack. 

The most important step in the process of changing your strategy is recognizing you have a problem. Dan talks about how he uses a monthly time frame to assess his success, and why not all time frames are created equal. One way to look at trading success is looking at your P&L consistency over a long period, in a certain market state. If you’re consistently coming up short, it might be time to adjust some facets of your approach. Dan advises struggling traders to tighten up their expectations in order to make more poignant moves.

A changing market state can also change how you trade, since the high volatility times require a much more different approach than a period of consistent up or down trends. 

Jack also describes two things to be avoided when evaluating your strategy. First, don’t snap to judgement after one bad trade or day. It takes longer than that for a real trend to develop. Similarly, you don’t want to let your trading slip into a long term decline. You need to be able to balance the short and long term so you can appropriately see which factors are causing your trading to go awry.

Then Dan gives his advice on how to specifically identify a losing strategy, by assessing your day trading success rate. He recommends grading how you stick to your strategy with letters, like in school. A great day is an “A,” a terrible one “F” and so on. Measure these grades each trading day over the course of a month or so. Then, compare these consistency scores to your strategy to your P&L. If you stick to your strategy well- which means usually getting “A’s” and “B’s”- but your P&L is poor, that’s an indication your strategy isn’t working. But, to diagnose the problem, you have to stay consistent with your strategy, Dan says.

Implementing Changes in Strategy

As next steps, Dan advises scaling down your trading volume and products. Whether it’s a trend trading strategy, scalping trading strategy or position trading strategy, scaling back is beneficial. It helps to focus on learning the motion of markets, to help establish a foundation for your strategy. Also, maybe consider taking some time off if your strategy isn’t performing well. Some time away is sometimes exactly what you need. To listen to our episode about taking time away from the trading desk, check out this page.


About Limit Up!

Limit Up! is a podcast brought to you by Topstep about trading, trading psychology, trading life, and pretty much whatever else the wonderful world of markets has to offer. It’s hosted by two former professional traders, Jack and Dan, who still dabble in futures, forex, options, political betting—they basically love to follow the action. They’ll teach you how to trade, but more importantly, how to develop the habits that make traders good. Risk Disclosure:

Topstep is the premiere funding opportunity for traders looking to make the most of market opportunities without risking their own capital. When traders pass the completely objective Trading Combine®, Topstep funds them with proprietary money. Guaranteed. Beyond funding, we seek to instill better habits in our traders (hence the Limit Up! Podcast and other educational resources). Topstep has been based in Chicago since 2012.


About The Hosts

Jack Pelzer is a co-host of Limit Up! He traded as part of a U.S. Treasury group for 7 years at Chopper Trading and DRW. After leaving the industry, he became a Writing Fellow and Senior Contributing Writer for The Onion. He is now the Head of Content at Topstep.

Dan Hodgman is a co-host of Limit Up! Prior to coming to Topstep Dan traded 30 Yr Treasury Options and Yield Spreads. Before that, he served in the United States Marine Corps where he simultaneously managed his own Futures Account applying the skills he grew up learning from clerking on the trading floor. Now Dan works with the Traders here at Topstep as a Performance Coach as well as being a regular on the Daily Market Recap.

If you’d like to receive new episodes as they’re published, please subscribe to Limit Up! in Apple Podcasts, Google Podcasts, Spotify or wherever you get your podcasts. If you enjoyed this episode, please consider leaving a review in Apple Podcasts. It really helps others find the show.

Podcast episode production by Dante32.