Truth be told, there is probably not a single system that can always stay profitable under all market conditions. There are instances when the market is ranging, typically during the summer months, and there are times when volatility is higher. Trend-following systems tend to do better when trends are stronger and prolonged while mean-reversion systems are usually more profitable under ranging market conditions.
One way to stay on top of the game under these dynamic conditions is to have a different system for each. You can switch to a trend-based approach during the more volatile trading months, such as the first and last quarters of the year. When markets are ranging in the summer months around the middle of the year, you can focus on a more range-bound approach.
Of course not all traders are able to make use of several trading systems all at once and it is difficult to keep shifting approaches every now and then. After all, market conditions are not even guaranteed, as black swan events could spark an unforeseen change in volatility when you least expect it!
Another way to ensure that your system is able to handle changing market conditions is to add a technical indicator that allows you to verify if conditions are ranging or trending. One example of this is the ADX or average directional index, which gives a reading below 20 when markets are ranging and gives a reading above 50 when markets are trending.
From there, you can look into holding on to trades much longer when markets are trending and adjusting your stop to lock in profits along the way. In ranging market conditions, you can have tighter stops and profit targets in case direction changes right away.
With deliberate practice and proper trade journaling, you can be able to be more in sync with the markets and have an easier time identifying if market conditions are about to shift. This kind of foresight is developed over time and not even the most seasoned trading professionals can claim to be able to predict a change in market conditions all the time.
At the end of the day, staying flexible as a trader will help you come out on top. Not only does this involve being able to tweak your system to adjust to dynamic market conditions, but it also requires you to align your trading mindset with these changes. You have to stay reasonable in your approach and not set overly ambitious targets, which might just lead to disappointment.
Instead of pressuring yourself to meet high expectations in your trading performance, take one step at a time towards improvement. When you are unable to adjust to a shift in market conditions right away, take that as a lesson learned and move on to figuring out what you should do next or what kind of adjustments you need to make. Remind yourself that you are in control of your trading decisions and risk management even in the middle of seemingly unpredictable market movements.
