At Xavier McAllister Capital, this has always been a dilemma. As a trading company, we are still of the opinion that rule-based trading is still the best approach and has underlined how we plan our strategies and trades. Simply said, If the criteria is met, the trade is taken. If not, we don’t then don’t force or break a rule to meet a target as it often has dire results.
However, we must also accept and realise that rule-based methods work well only if you operate in a “fixed” environment, and as we know, the market is not fixed. When you build a house, complete a course or take an exam, you must follow strict rules otherwise you will fail. But when you’re trading, you’re operating in the market which is a “dynamic” environment. And if the context changes, the old criteria and rules will mislead you.
Does it mean that you trade without rules? Of course, you trade with rules but you must also make decisions based on the information and the dynamics of the market available at that time. So, if the market changes over a period, then be prepared to adapt. but also make sure you are aware that the changes are temporary (e.g. USA bank holidays) or long standing impacts (the 2020 Corona Virus Pandemic).
Trading is a business and therefore you need to follow its first principle. You may have to adapt to the (constantly) changing environment.