When to Relearn Your Model?

Every trader and investor in their trading asks at some point, do I need to change my current trade strategy? No matter what technical indicator you use, chart pattern or black box system, there does come a time when you need to change your strategy. The real questions are why and when to change. Whenever there has been a change in the pattern of the market or the symbols you are trading, it is time to review your trade plan and trading strategies. Or if you are using advanced technical analysis utilizing neural networks, networks, your models need to be relearned. Basically there are the six different pattern formations to look for.

Up Trending with Low Volatility

Up Trending with High Volatility

Sideways with Low Volatility

Sideways with High Volatility

Down Trending with Low Volatility

Down Trending with High Volatility

A change in the above patterns requires you to adjust your strategy. It could only be a minor change such as adjusting stops. Review the difference in volatility from when strategy was created or model learned and the current market conditions. Maybe a change in trade volume has occurred. Higher or lower trading volume will affect the way the underlying moves intraday and longer term. Review why trade volume changed? Has the underlying changed character because of news or other non technical factors? If yes, this may be a time to step away from trading or investing in this position. With so many stocks, ETF’s, funds and indexes to trade, this is a one of your advantages. You can trade when you want to and stay away when your strategy does not work for that particular stock or market condition.

Using advanced technical analysis with neural network technology, you can easily change the learning period and relearn the model. Adjust stops and make new trade decisions to go long, short or both if needed. Then test the new model and see if results have improved. If they have, begin implementing the new strategy. If not, begin scanning for new symbols and other trades. Remember to not get attached to any one specific trade, company or trading strategy.

Also remember in trading and investing. There is no indicator, trade strategy or system that is right 100% of the time. Your edge is using a specific strategy when certain market conditions exist that make that strategy profitable over a longer period of time. Utilizing neural network technology is not for day trading. The edge here is trading the learned model over time to achieve the results similar to the testing period. Reviewing all of your trades, both winners and losers will assist you in making informed decisions on when to make changes to your trade plan and strategies.