SCOTT WELSH TRADING BLOG

Finding a Legitimate Long-Term Solution

Finding a Legitimate Long-Term Solution

May 26, 2021

It made me furious.

Not only was it wrong, it was negligent. And dishonest.

Quite often, I used to see tennis pros teaching outdated or nonsensical strokes to innocent students. And those poor students would take these ludicrous strokes into tournaments.

And get killed.

They’d lose and lose and lose.

And what did the pro do? Did he make adjustments? Take a different path? Stop teaching such moronic strokes?

Nope.

The pro would say, “These strokes are for the long-term. I don’t expect your son to win now. But if he keeps practicing, he’ll win five years from now.”

Know what happened to those kids five years later? They still got killed.

It was a joke. A bad one.

Which leads us to trading.

Because it’s the losing that’s so important.

If we have a good strategy that loses today, all we have to do is stick to the program and we’ll have a lot of money five years from now.

But…

What if it’s a bad strategy?

What if we’ve been taught moronic strokes?

If that’s the case, then we’re going to be like those poor kids and be very sad in half a decade.

So, how do we know? How do we know when to stay with it or find a new pro?

One way to find out if our strategy will hold up is to look at optimizing. Or, more to the point, over-optimizing.

If we have 15 variables and we’ve tested one million iterations on a very small sample size, we’ve probably come up with a strategy that will literally only work in one very specific type of market.

When the 15-variable strategy goes bad, we’re probably in big trouble.

But what if we barely optimize at all? What if we do the least amount possible? Doesn’t that give us a chance for our strategy to work in a lot of different markets?

To use the tennis analogy, if we win a match slicing crosscourt inside the box to a right-hander who’s over 6 feet 2 inches tall on a day with 85% humidity at high noon, that’s probably NOT a strategy that will work in the future. It will fail very quickly against an opponent who doesn’t have all of those characteristics.

But if our strategy is to get our first serve in and hit approach shots to the backhand, that’s going to win now and far into the future.

Sure, we might struggle (go into drawdown) against some left-handers or against Dominic Thiem, but it will definitely work in the long-term.

That’s where we need to go with our strategies.

Not too many variables. Not too many tweaks.

The less we optimize, the more markets our strategies will work on.

There is no universe where a high first serve percentage and approaching to the backhand will ever lead to sustained failure.

In our next email, we’ll go over the details of a system that’s very un-optimized.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.