Signals and Meta-signals

If I had to categorize the different ways I've used trading signals in my brief forex career, I'd break them down into something like this:

1) I have no idea what a trading signal is, but I'm very eager to find out so I can get rich this year.

2) I'm trading with the first signals I read about in a book/website because someone said they work. But for some reason I'm not getting rich. In fact I've blown most of my account and if I'm going to preserve the rest I need a new style of trading - quickly.

3) I've discovered the psychological side of trading (the hard way) and am learning how to apply someone else's trading signals with discipline, rather than haphazardly whenever I need my trading fix.

4) I've begun to tweak the various off-the-shelf signals I've been using with my own variations and started using historical data and backtesting to determine which ones work best - if they work at all.

5) I've begun prospecting for my own trading signals using historical data and developing my own trading system that combines various signals with layered "and/or" logic. I end up focusing on this project obsessively for several months.

6) I discover (the hard way, as usual) that sometimes my trading system works well, and sometimes it's crap depending on underlying market conditions. To try and overcome this problem, I start exploring the idea of meta-signals, which monitor the performance of my trading signals and turn them on or off, or even reverse them, based on their recent track record.

So far the meta-signals I've developed act as trading filters, kill switches, and signal flippers. Others I've tried in the past but don't use currently are designed to weight competing signals based on their performance to determine which one is more likely to work. The basic principle is the same across the board: using internal feedback to fine-tune trading activity.

If you've been reading this blog much lately, you can probably tell #6 is the stage I'm in right now. Who knows, maybe it's the last signal-related stage before I start trading without any signals at all - though I can't imagine how I'd pull that off. I've found that meta-signals are as important as, if not more important, than the actual trading signals themselves. The reason is simple: they make my trading system work better. In fact sometimes I wonder if a really mediocre trading system could turn into a highly profitable one if the right meta-signals were attached to it.

So if you're ever frustrated with how your own trading system is performing, try running it through some meta-signals before trading it in for a new one. They might make all the difference.