Logic In Investment Strategies

By Gnifrus Urquart

I've been an active investor for about 20 years of my life. In using either my tried and tested strategies, or trialing new ones, one thing I have realised is that the more an investment strategy makes logical sense, the more successful it tends to be.

There are so many strategies I've tried, I have lost count. And there are at least as many which I've let go without trying. There are just too many. I found a quick fire way though which helps disregard the strategies which are useless, so you can trial the ones which are worth trialing. Its logic. Look at the logic of your trading strategy and see if there are holes in it. You'll be amazed by the number of strategies with big logical holes.

Its quite possible that these strategies, in their wholeness work quite well. But the problem is that if you are trading a strategy which has holes in it, at some stage you'll come up against a real life situation where the strategy has no answer. Then you'll be on your own and you'll need to make a decision outside the strategy. This can be an educated guess, to an intuitive judgment call, to a flip of a coin.

If a trading strategy leaves you guessing, when you make these guesses, you are gambling. A proper trading strategy will leave no contingency for guesswork. It will cover all scenarios taking human error out of the equation. It will be systemised and complete.

Also, the point about trialing a strategy is that you are finding out whether it will make consistent returns over the fullness of time. The point about trading a strategy is that you know it makes consistent returns over the fullness of time. If you have had a guess mid way through the strategy, you cannot be confident its the strategy or your guess which is making the money. You will need to start again.

So if you are thinking about trading a new strategy, short cut experiencing some pain and loss. Go through the logic of the strategy in a robust and thorough manner. Are there scenarios you can see, which the strategy possibly does not cover? If so, try and get answers for those scenarios. If you can't get answers for them, personally, I'd avoid the strategy. Lets face it, going to the horse races is much more fun :)

And once you are happy with the logical analysis you have applied, don't forget to dummy trade for a while too. In dummy trading you will probably find a number of scenarios you never thought of. This gives you the chance of ensuring the strategy deals appropriately with them too, without risking any money. Good luck. - 23226

About the Author:

After many years of profitable investing, Gnifrus Urquart enjoys discussing his favorite investment strategies and offering general investment guidance