Trading System Hopping: The Surefire Road to Madness

Updated: Jan 8

There are numerous reasons why 90% of retail traders lose money, some of them are obvious ones, like:

  1. Poor risk management principles:

  2. Not understanding leverage

  3. Not cutting losers and taking profits too soon

  4. Overtrading

  5. Using systems with poor RRR (risk-reward ratio)...the list goes on for this one.

  6. Chasing losses

  7. Impatience

Most of it comes down to a lack of patience and discipline. But one of the most frustrating things as a trader, and believe me when I tell you that this applied to me for the better part of a decade, is when a trader eliminates their edge in the markets by switching their trading system or strategy too often.

You can totally understand how to manage risk immaculately, you can have the best fundamental knowledge of any given market or an understanding of macroeconomics that puts Ray Dalio to shame, but if you can’t sodding well stick to trading one system for long enough then you’ll end up going insane.

Here’s what happens:

You identify a system that suits your style of trading.

You backtest it thoroughly.

You start out with it and it’s going fine.

You eventually have a drawdown.

All of a sudden your inner perfectionist is beginning to question your system’s validity.

You see a new system that would have made more money.

You backtest that one instead, and after a few more losses on your original system you decide to ditch it, it must have not been so good after all.

You start running your new system.

So far so good, you’re making back some of your lost account balance on this new system.

Oh no, here we are again, drawdown city, now you’re even lower than you were at the end of your last drawdown on the original system.

You look back at how your old system would have been performing.


Had you stuck with your original system you’d have been back in the green and your equity curve would have been trending up.

You idiot, oh well, back to that system again I guess. Lesson learned.

1-month in… why is this system losing now… I must be cursed, I’m so unlucky, these systems don’t work, the market is a con etc.

To read this, it sounds crazy, right?

You’d think that I was making it up and that nobody would be daft enough to do this. But let me tell you, almost everyone who’s trading for any substantial period of time will have done this at least once!

It makes you feel like a muppet, and it doesn’t do your results any good, but it’s so hard to stop doing it.

Why Do We System Hop?

We’re naturally wired to strive for perfection. We like to look at continuously rising equity curves, we don’t want to report a negative figure at the end of the day, week, month, quarter, YEAR! It pains us to do so.

So our natural behaviour is to meddle and tinker.

Additionally, we get FOMO when we see other traders on YouTube or in books you’ve read making loads of money trading X, Y or Z system and this the way route to millions.

We see that, and despite having our own fully tested, profitable system that suits our lifestyle, we try something else for some reason, just in case we’re missing out.

We can’t help ourselves.

How Can We Avoid This Self-Destructive Pattern of Behaviour?

There are a few things that really helped me with this, and the moment that I stopped system hopping, was the moment I started printing consecutive profitable quarters time after time.

The few aforementioned things all relate to properly understanding your system. By this, I don’t mean knowing when to buy or sell, or where to place your stop loss. I am talking about knowing how to properly backtest a system, and knowing how to interpret that data -

check out this book by world renowned expert Van K Tharp for more on backtesting trading systems.

These are the things you need to do and know:

  • Backtest your system in up, down and sideways markets over prolonged periods.

  • Based on that, what sort of market can you expect your system to kick ass in?

  • What sort of market can you expect your system to suck in?

  • Have you tested it on long, medium and short term time frames? Which works best? Why?

  • Do you understand why your system performs well or badly in certain conditions and on certain time frames? Write down these reasons.

  • Do you know what the max expected overall drawdown is?

  • How many consecutive losses can you expect to experience? Does this sit well with your psychological preparedness to trade?

  • What is the optimal average RRR that your system produces overall?

After you’ve understood all of these things about your system you should have total confidence that you’ve proven that your system makes money. Now, for example, you’ll know that when you’ve lost, say, 6 trades in a row, that there’s no need to look at other systems, but rather you can reassure yourself that over the last 5 years your system backtest has lost 6 trades in a row 22-times, and it’s perfectly standard. Sure, it’s not a nice feeling, but let’s be objective, it’s losing because we’re in a flat market, you know your trend following system performs best in a trending market (or your mean reversion system works in a ranging market), and so this is par for the course.

This knowledge and other observations about your system, after all your thorough backtesting, will give you the reassurance you need to keep trading your system mechanically like a robot, or Dr Spock or ...a profitable trader.

Times To Actually Be Concerned You Need To Change Systems

  1. If you experience a drawdown with a 50% deviation above your expected level.

So for example, if you expect your max drawdown would be 12% and you suddenly saw an 18% drawdown, then that would be a red flag to look at how you’re trading the system. Have your entries been accurate? Your take profit levels on point?

If you look at your trades and you realise that the market conditions have just not been suitable for your system for a longer period of time than has historically been tested, then objectively there isn’t anything wrong with the system.

  1. Is your drawdown in accordance with times you expect your system to suck?

If you realise that you’re in a nice trending market where your system should be winning big 40% of the time and making you profits, but it’s getting decimated, then something is wrong.

This is the only time where you should consider ceasing to trade your system. You’ve experienced an abnormal drawdown in a market where your system should be performing well.

Otherwise, remind yourself of why your system works, what the expected stats should be, keep calm and carry on trading.

Other Things That Help You Remain Level-Headed

Understanding Trading Edges

Being a profitable trader, at its core is about immaculate risk management and consistently trading with an edge in the markets.

Examples of edges in trading:

  1. Positive risk-reward ratio

  2. Trading with the trend

  3. Trading around areas of support and resistance where you can get the best RRR

  4. Averaging into trades to maximise winners on pullbacks or breakouts.

  5. Being long on equities

  6. Being a robot to ensure consistency and never missing a profitable signal for your system.

Take these 6 edges alone and apply them to your trading and you’re probably a profitable trader.

Add onto this your newly tested strategy and your in-depth understanding of the system’s characteristics and you’ve got the upper hand on the market. Remind yourself of that when you’re in a drawdown. List your edges, look at your system’s expected performance and put the kettle on.

All you have to do is stick to your system!

Automating Your System

If you can automate your system then that really is amazing, I’ve enjoyed doing this with some of the more simple systems that I trade, and it was a game-changer for me. You don’t need to do a thing in your day-to-day other than ensure your system is executing correctly.

The difficulty with an automated system for most people, again, is… you’ve guessed it… doing nothing. People always feel the need to mess about with their process.

If you’re the type of trader that gets itchy fingers and needs to do something, then automated trading might not be the thing for you. Whereas, if you enjoy playing 3-4 hour rounds of golf, or playing Call of Duty for hours on end, then it might just be exactly what you’ve been looking for.

You can learn how to do it yourself using Python, MQL4, MQL5, Pine or ProRealCode. Or you can pay someone to do it for you on MQL4/5 forums or a site like Fiverr.

It Isn’t the Strategy That Fails Most People, It’s the People That Fail the Strategy

Acknowledging that there are thousands of ways to make money in the markets and that you also possess one of those valid methods, is an important realisation to bear in mind.

System hopping is one of those ways that people fail the system. The other common suspect is over-extending the risk on each trade, trading too many assets or tampering with the SL and/or TP orders.

Genuinely, I could give 100 people the exact system that I trade and even tell them the trades I’m taking each week, and around 80 of those people would struggle to stick to the system perfectly for longer than a month, maybe even more.

If you can simply master following the rules of your system then you’ll make the long term! It’s crazy that more people don’t make money trading.

If in Doubt, Play Call of Duty

It might not be Call of Duty for you, it might be your day job, gardening, competitive eating or dog walking. But having a distraction, whatever it may be, to enjoy whilst your trades are running will help stop you from meddling and allow your system to unfold as it should.

Just make sure you’re not missing entry/exit signals. You can set up alerts, automate your system, or choose an end of day (EOD) system where you check the markets at night and put your orders in once per day.

For me, it’s all about playing Call of Duty and running!

Reach Out to Me

I hope that this blog post has helped you become more consistent with your trading performance. I’d absolutely love to hear from any of you who can relate to this. As I said at the beginning of the post, I’ve been guilty of many of these mistakes and it is because of this that I’m so well-positioned to discuss them.

Tweet me @MatthewSpurr and follow along, I'd love to hear from you and connect.

I’m sure many of you have even more words of wisdom that can be passed on to our community of spread betting traders. I'd love to update this post with those stories or even share them in a separate post some time.

Thanks for reading. Happy spread betting!

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