22 September 2018
Ed Seykota: The Greatest Trend Follower
Credit: Rayner Teo
Ed Seykota managed to achieve a return of 250,000% over a 16 year period. Here is what he said.
1) If I am bullish, I neither buy on a reaction,
nor wait for strength; I am already in. I
turn bullish at the instant my buy stop is
hit, and stay bullish until my sell stop is
hit. Being bullish and not being long is
illogical.
2) The feelings we accept and enjoy rarely
interfere with trading.
3) Systems don’t need to be changed. The trick is for a trader to develop a system
with which he is compatible.
4) It can be very expensive to try to convince the markets you are right.
5) There are old traders and there are bold traders, but there are very few old,
bold traders.
6) I would add that I consider myself and how I do things as a kind of system which,
by definition, I always follow.
7) Systems trading is ultimately discretionary. The manager still has to decide how
much risk to accept, which markets to play, and how aggressively to increase
and decrease the trading base as a function of equity change.
8) Trying to trade during a losing streak is emotionally devastating. Trying to play
“catch up” is lethal.
9) The elements of good trading are: 1. Cutting losses. 2. Cutting losses. 3. Cutting
losses. If you can follow these three rules, you may have a chance.
10) Losing a position is aggravating, whereas losing your nerve is devastating.
11) The markets are the same now as they were five to ten years ago because they
keep changing, just like they did then.
12) A losing trader can do little to transform himself into a winning trader. A losing
trader is not going to want to transform himself. That’s the kind of thing winning
traders do.
13) If you can’t take a small loss, sooner or later, you will take the mother of all
losses. Risk no more than you can afford to lose, and also risk enough so that
a win is meaningful.
14) The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small.
4. Follow the rules without question. 5. Know when to break the rules.
15) I usually ignore advice from other traders, especially the ones who believe they
are on to a “sure thing”. The old timer, who talk about “maybe there is a chance
of so and so,” are often right and early.
16) I set protective stops at the same time I enter a trade. I normally move these
stops in to lock in a profit as the trend continues. Sometimes, I take profits when
a market gets wild. This usually doesn’t get me out any better than waiting for
my stops to close in, but it does cut down on the volatility of the portfolio, which
helps calm my nerves.
17) In order of importance to me are: 1) the long term trend, 2) the current chart
pattern, and 3) picking a good spot to buy or sell.
18) The key to long-term survival and prosperity has a lot to do with the money
management techniques incorporated into the technical system.
19) To avoid whipsaw losses, stop trading.
20) Pyramiding instructions appear on dollar bills. Add smaller and smaller
amounts on the way up. Keep your eye open at the top.
21) Markets are fundamentally volatile. No way around it. Your problem is not in
the math. There is no math to get you out of having to experience uncertainty.
22) Before I enter a trade, I set stops at a point at which the chart sours.
23) The positive intention of fear is risk control.
Ed Seykota managed to achieve a return of 250,000% over a 16 year period. Here is what he said.
1) If I am bullish, I neither buy on a reaction,
nor wait for strength; I am already in. I
turn bullish at the instant my buy stop is
hit, and stay bullish until my sell stop is
hit. Being bullish and not being long is
illogical.
2) The feelings we accept and enjoy rarely
interfere with trading.
3) Systems don’t need to be changed. The trick is for a trader to develop a system
with which he is compatible.
4) It can be very expensive to try to convince the markets you are right.
5) There are old traders and there are bold traders, but there are very few old,
bold traders.
6) I would add that I consider myself and how I do things as a kind of system which,
by definition, I always follow.
7) Systems trading is ultimately discretionary. The manager still has to decide how
much risk to accept, which markets to play, and how aggressively to increase
and decrease the trading base as a function of equity change.
8) Trying to trade during a losing streak is emotionally devastating. Trying to play
“catch up” is lethal.
9) The elements of good trading are: 1. Cutting losses. 2. Cutting losses. 3. Cutting
losses. If you can follow these three rules, you may have a chance.
10) Losing a position is aggravating, whereas losing your nerve is devastating.
11) The markets are the same now as they were five to ten years ago because they
keep changing, just like they did then.
12) A losing trader can do little to transform himself into a winning trader. A losing
trader is not going to want to transform himself. That’s the kind of thing winning
traders do.
13) If you can’t take a small loss, sooner or later, you will take the mother of all
losses. Risk no more than you can afford to lose, and also risk enough so that
a win is meaningful.
14) The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small.
4. Follow the rules without question. 5. Know when to break the rules.
15) I usually ignore advice from other traders, especially the ones who believe they
are on to a “sure thing”. The old timer, who talk about “maybe there is a chance
of so and so,” are often right and early.
16) I set protective stops at the same time I enter a trade. I normally move these
stops in to lock in a profit as the trend continues. Sometimes, I take profits when
a market gets wild. This usually doesn’t get me out any better than waiting for
my stops to close in, but it does cut down on the volatility of the portfolio, which
helps calm my nerves.
17) In order of importance to me are: 1) the long term trend, 2) the current chart
pattern, and 3) picking a good spot to buy or sell.
18) The key to long-term survival and prosperity has a lot to do with the money
management techniques incorporated into the technical system.
19) To avoid whipsaw losses, stop trading.
20) Pyramiding instructions appear on dollar bills. Add smaller and smaller
amounts on the way up. Keep your eye open at the top.
21) Markets are fundamentally volatile. No way around it. Your problem is not in
the math. There is no math to get you out of having to experience uncertainty.
22) Before I enter a trade, I set stops at a point at which the chart sours.
23) The positive intention of fear is risk control.
Labels: Investment Quote
21 September 2018
High Probability Trading Strategy — A Complete Guide
Credit: Rayner Teo
Do you want to find high probability trading setups?
I’m sure you do, right? (Or you won’t be reading this right now)
But the thing is…
…you’re not sure how.
Instead of looking at price, you’re looking at indicators (without understanding the purpose of it).
Instead of following trends, you’re trying to predict market reversals.
Instead of proper risk management, you put on a huge bet because this trade “feels good”.
Now…
If you’re doing any of the above, then it will be difficult to identify high probability trading setups.
But don’t worry.
I’ve got good news for you.
Because in this post, I’ll teach you step-by-step on how to find high probability trading setups.
Here’s what you’ll learn:
Why trading with the trend increase your returns and reduce your risk
How to identify the best areas to trade on your chart
How to trade pullback, breakouts, and the failure test pattern
How to set a proper trading stop loss so you don’t get stopped out “too early”
A high probability trading strategy that lets you profit in bull & bear markets
Are you ready?
Then let’s begin…
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
The trend gives you the biggest bang for your buck
The definition of the trend is this…
Uptrend – consists of higher highs and lows
Downtrend – consists of lower highs and lows
If you want to know where’s the path of least resistance, look left (and follow the trend).
When the price is in an uptrend, you should stay long. When the price is in a downtrend, you should stay short.
By trading with the trend, you can see that the impulse move (green) goes much more in your favor, compared to the corrective move (red).
Here are a couple of examples…
most bang for buck 2most bang
Now you’re probably wondering:
Rayner, identifying a trend looks easy. But how do I enter an existing trend?
And this is what we’re covering next…
Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short. – Jesse Livermore
How to identify areas of value on your chart
You’d probably heard of the saying, “buy low sell high”.
But the question nobody asks is…
…what’s low and what’s high, right?
This is where Support & Resistance comes into the picture.
Support & Resistance
And this is the definition of it:
Support – an area with potential buying pressure to push price higher (area of value in an uptrend)
Resistance – an area with potential selling pressure to push price lower (area of value in a downtrend)
Here’s what I mean…
support in uptrendresistance in downtrend
Dynamic Support & Resistance
What you’ve seen earlier is what I call, classical Support & Resistance (horizontal lines)
Alternatively, it can come in the form of moving average. This is known as dynamic Support & Resistance (and I use the 20 & 50 EMA).
This is what I mean…
dynamic support2dynamic resistance2
Not only does support & resistance allows you to trade from an area of value, it improves your risk to reward and winning rate as well.
Watch this training video below and learn how:
Now, another “trick” you can use is to use overbought/oversold indicators.
High probability trading — using Stochastic to identify areas of value
A big mistake most traders make is, going short just because the price is overbought, or oversold.
Because in a strong trending market, the market can be overbought/oversold for a sustained period of time (and if you’re trading without stops, you risk losing your entire account).
Here’s what I mean:
oversold for long periodoverbought for long period
Now you’re wondering:
How do I use Stochastic to identify areas of value?
Here’s the secret…
Are you ready?
In an uptrend, you only look for longs, when the price is oversold.
In a downtrend, you only look for shorts, when the price is overbought.
Here’re some examples:
oversold in uptrendoverbought in downtrend
If you follow this simple rule, you can “predict” when a pullback will usually end.
So, you’ve learned how to identify areas of value on your chart.
Now…
…you’ll learn how to better time your entries.
How to enter your trades
There’re 3 ways you can enter a trade:
Pullback
Breakout
Failure test
Pullback
A pullback is when price temporarily moves against the underlying trend.
In an uptrend, a pullback would be a move a lower.
Here’s an example:
pullbacks in uptrend
And…
In a downtrend, a pullback would be a move higher.
An example:
pullbacks in downtrend
According to the work’s of Adam Grimes, trading pullbacks has a statistical edge in the markets as proven here.
You may wonder:
What are the pros and cons of trading pullbacks?
Advantages of trading pullbacks:
You get a good trade location as you’re buying into an area of value. This gives you a better risk to reward profile.
Disadvantages of trading pullbacks:
You may potentially miss a move if the price doesn’t come into your identified area.
You’ll be trading against the underlying momentum.
Breakout
A breakout is when price moves outside of a defined boundary.
The boundary can be defined using classical support & resistance.
Breakout to the upside:
upside breakout
Breakout to the downside:
downside breakout
You’re wondering:
What are the pros and cons of trading breakouts?
Advantages of trading breakouts:
You will always capture the move.
You are trading with the underlying momentum.
Disadvantages of trading breakouts:
You get a poor trade location as you’re paying a premium.
You may encounter a lot of false breakouts.
For a more in-depth explanation, go read The Definitive Guide to Trading Pullbacks and Breakouts.
Failure test
This technique possibly originated from Victor Sperandeo, and the works of Adam Grimes shows that it has a statistical edge in the markets.
It works like this…
You’re entering your trade when the price does a false breakout of Support/Resistance. Thus taking advantage of traders who are trapped from trading the breakout.
This entry can be applied in a trending or range market.
Here’re a few examples:
failure test2failure test3failure test1
For further explanation, watch this training video below:
Now, the next thing you’re going to learn is…
How to set your stop loss
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined by the maximum dollar amount you are willing to lose. – Bruce Kovner
I’m going to share with you 3 ways to do it:
Volatility stop
Time stop
Structure stop
Volatility stop
A volatility stop takes into account the volatility of the market.
An indicator that measure volatility is the Average True Range (ATR), which can help set your stop loss.
You need to identify the current ATR value and multiply it by a factor of your choice. 2ATR, 3ATR, 4ATR etc.
atr
In the example above, the ATR is 71 pips.
So if you were to place a stop loss of 2ATR, take 2*71 = 142 pips
Your stop loss is 142 pips from your entry.
Pros:
Your stop loss is based on the volatility of the market
An objective way to define how much “buffer” you need from your entry
Cons:
It’s a lagging indicator because it is based on past prices
Time stop
A time stop determines when you exit your trades based on time.
Instead of exiting your trades based on price, you exit your trades after X amount of time has passed.
You need to define how much time you will allow before exiting it.
An example:
You took a short trade at resistance area. But after 5 days it’s not going anywhere, so you exit your trade.
time3
Pros:
You reduce losses
If you have trading records, you can identify optimal amount of time to give your trades
Cons:
You may exit prematurely only to see price move in your favor
Structure stop
A structure stop takes into account the structure of the market and set your stop loss accordingly.
An example…
Support is an area where price may potentially trade higher from. In other words, it’s a “barrier” that prevents further price decline.
Thus, it makes sense to have your stop loss below Support. Vice versa for Resistance.
Here’s what I mean:
sl below supportsl above resistance
You want to place your stop loss where there is a structure in the market that can act as a “barrier” for you.
Below is a training video that explains this concept in more detail…
Pros:
You know exactly when you’re wrong because market structure has broken
You’re using “barriers” in the market to prevent price from hitting your stops
Cons:
You need wider stop loss if the structure of the market is large (this results in smaller position size to keep your risk constant)
If you want to learn more, go read 13 ways to set your stop loss to reduce risk and maximise profits.
Now, let’s move on…
What is confluence and how it impacts your trading
Here’s the thing:
You’re not going to enter a long trade just because Stochastic is oversold, or the market is in an uptrend.
You’d need additional “supporting evidence” to give you the signal, to enter the trade. And this “supporting evidence” is known as, confluence.
Confluence is when two or more factors give the same trading signal. E.g. The market is in an uptrend, and price retraces to an area of support.
Here’re two guidelines for you:
1. Not more than four confluence factors
The more confluence you have, the higher the probability of your trade working out. But…
In the real world, your trading strategy should have anywhere between 2 – 4 confluence factors.
Anything more, chances are you’re going to get very little trading setups. And it’ll take you forever before your edge can play out.
You can take mediocre trading setups, and still make money in the long run.
2. Do not have more than one confluence factor in the same category
If you’re going to use indicators (oscillators) to identify overbought/oversold areas, then use that only.
Don’t add Stochastic, RSI and CCI because it’ll leave you with analysis paralysis. Similarly…
…adding simple, exponential and weighted moving average on your charts, doesn’t make any sense.
If you’re still reading at the point, you’re in for a treat. Because here comes the exciting part…
A high probability trading strategy that lets you profit in bull & bear markets
And here’s my secret (which is what you’ve just learned)…
Trade with the trend
Trade at areas of value
Find an entry
Set my stop loss
Plan my exit
If a trade meets these 5 criteria, then its a good trade to me.
Now, let’s learn a new trading strategy, that gives you high probability trading setups.
Are you ready?
Here it goes…
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading with the trend).
If it’s an uptrend, then wait for the price to pullback to an area of support (trading at an area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger).
If there’s failure test entry, then go long on next candle’s open (my entry trigger).
If a trade is entered, then place a stop loss below the low of the candle, and take profit at nearest swing high (my exit and profit target).
Vice versa for a downtrend
**Disclaimer: I will not be responsible for any profit or loss resulting from using this trading strategy. Past performance is not an indication of future performance. Please do your own due diligence before risking your hard earned money.
Here’re a few trading examples:
high probability trading setup3high probability trading setup2high probability trading setup1
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
Here’s the thing:
You may not be comfortable using my trading strategy because it may not suit you.
So, what you need to do is, “tweak” it into something that fits you. And this is what we’ll cover next…
I don’t think traders can follow rules for very long unless they reflect their own trading style. – Ed Seykota
How to develop a high probability trading strategy (a template you can use)
You can “mix and match” different trading techniques I’ve shared with you earlier.
But ultimately, your trading strategy needs to answer these 7 questions:
1. How are you going to define a trend?
You can consider moving average, trendline, structure etc.
2. How are you going to define an area of value?
You can consider dynamic Support & Resistance, weekly highs/lows, Stochastic etc.
3. How are you going to enter your trade?
You can consider pullbacks, breakouts, failure test, moving average crossover etc.
4. How are you going to exit your trade?
There’re many ways to exit a trade. Go read 13 Ways to Set Your Stop Loss to Reduce Risk and Maximise Profits to learn more.
5. How much are you going to risk on each trade?
I would suggest risking no more than 1% of your account on each trade, to avoid the risk of ruin.
6. How are you going to manage your trade?
Will you scale out or scale in your trades? If so, how much?
7. Which markets will you be trading?
Are you focusing on one market or many markets?
If you trade a variety of markets, you want to be aware of the correlation between markets.
Do you want to find high probability trading setups?
I’m sure you do, right? (Or you won’t be reading this right now)
But the thing is…
…you’re not sure how.
Instead of looking at price, you’re looking at indicators (without understanding the purpose of it).
Instead of following trends, you’re trying to predict market reversals.
Instead of proper risk management, you put on a huge bet because this trade “feels good”.
Now…
If you’re doing any of the above, then it will be difficult to identify high probability trading setups.
But don’t worry.
I’ve got good news for you.
Because in this post, I’ll teach you step-by-step on how to find high probability trading setups.
Here’s what you’ll learn:
Why trading with the trend increase your returns and reduce your risk
How to identify the best areas to trade on your chart
How to trade pullback, breakouts, and the failure test pattern
How to set a proper trading stop loss so you don’t get stopped out “too early”
A high probability trading strategy that lets you profit in bull & bear markets
Are you ready?
Then let’s begin…
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
The trend gives you the biggest bang for your buck
The definition of the trend is this…
Uptrend – consists of higher highs and lows
Downtrend – consists of lower highs and lows
If you want to know where’s the path of least resistance, look left (and follow the trend).
When the price is in an uptrend, you should stay long. When the price is in a downtrend, you should stay short.
By trading with the trend, you can see that the impulse move (green) goes much more in your favor, compared to the corrective move (red).
Here are a couple of examples…
most bang for buck 2most bang
Now you’re probably wondering:
Rayner, identifying a trend looks easy. But how do I enter an existing trend?
And this is what we’re covering next…
Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short. – Jesse Livermore
How to identify areas of value on your chart
You’d probably heard of the saying, “buy low sell high”.
But the question nobody asks is…
…what’s low and what’s high, right?
This is where Support & Resistance comes into the picture.
Support & Resistance
And this is the definition of it:
Support – an area with potential buying pressure to push price higher (area of value in an uptrend)
Resistance – an area with potential selling pressure to push price lower (area of value in a downtrend)
Here’s what I mean…
support in uptrendresistance in downtrend
Dynamic Support & Resistance
What you’ve seen earlier is what I call, classical Support & Resistance (horizontal lines)
Alternatively, it can come in the form of moving average. This is known as dynamic Support & Resistance (and I use the 20 & 50 EMA).
This is what I mean…
dynamic support2dynamic resistance2
Not only does support & resistance allows you to trade from an area of value, it improves your risk to reward and winning rate as well.
Watch this training video below and learn how:
Now, another “trick” you can use is to use overbought/oversold indicators.
High probability trading — using Stochastic to identify areas of value
A big mistake most traders make is, going short just because the price is overbought, or oversold.
Because in a strong trending market, the market can be overbought/oversold for a sustained period of time (and if you’re trading without stops, you risk losing your entire account).
Here’s what I mean:
oversold for long periodoverbought for long period
Now you’re wondering:
How do I use Stochastic to identify areas of value?
Here’s the secret…
Are you ready?
In an uptrend, you only look for longs, when the price is oversold.
In a downtrend, you only look for shorts, when the price is overbought.
Here’re some examples:
oversold in uptrendoverbought in downtrend
If you follow this simple rule, you can “predict” when a pullback will usually end.
So, you’ve learned how to identify areas of value on your chart.
Now…
…you’ll learn how to better time your entries.
How to enter your trades
There’re 3 ways you can enter a trade:
Pullback
Breakout
Failure test
Pullback
A pullback is when price temporarily moves against the underlying trend.
In an uptrend, a pullback would be a move a lower.
Here’s an example:
pullbacks in uptrend
And…
In a downtrend, a pullback would be a move higher.
An example:
pullbacks in downtrend
According to the work’s of Adam Grimes, trading pullbacks has a statistical edge in the markets as proven here.
You may wonder:
What are the pros and cons of trading pullbacks?
Advantages of trading pullbacks:
You get a good trade location as you’re buying into an area of value. This gives you a better risk to reward profile.
Disadvantages of trading pullbacks:
You may potentially miss a move if the price doesn’t come into your identified area.
You’ll be trading against the underlying momentum.
Breakout
A breakout is when price moves outside of a defined boundary.
The boundary can be defined using classical support & resistance.
Breakout to the upside:
upside breakout
Breakout to the downside:
downside breakout
You’re wondering:
What are the pros and cons of trading breakouts?
Advantages of trading breakouts:
You will always capture the move.
You are trading with the underlying momentum.
Disadvantages of trading breakouts:
You get a poor trade location as you’re paying a premium.
You may encounter a lot of false breakouts.
For a more in-depth explanation, go read The Definitive Guide to Trading Pullbacks and Breakouts.
Failure test
This technique possibly originated from Victor Sperandeo, and the works of Adam Grimes shows that it has a statistical edge in the markets.
It works like this…
You’re entering your trade when the price does a false breakout of Support/Resistance. Thus taking advantage of traders who are trapped from trading the breakout.
This entry can be applied in a trending or range market.
Here’re a few examples:
failure test2failure test3failure test1
For further explanation, watch this training video below:
Now, the next thing you’re going to learn is…
How to set your stop loss
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined by the maximum dollar amount you are willing to lose. – Bruce Kovner
I’m going to share with you 3 ways to do it:
Volatility stop
Time stop
Structure stop
Volatility stop
A volatility stop takes into account the volatility of the market.
An indicator that measure volatility is the Average True Range (ATR), which can help set your stop loss.
You need to identify the current ATR value and multiply it by a factor of your choice. 2ATR, 3ATR, 4ATR etc.
atr
In the example above, the ATR is 71 pips.
So if you were to place a stop loss of 2ATR, take 2*71 = 142 pips
Your stop loss is 142 pips from your entry.
Pros:
Your stop loss is based on the volatility of the market
An objective way to define how much “buffer” you need from your entry
Cons:
It’s a lagging indicator because it is based on past prices
Time stop
A time stop determines when you exit your trades based on time.
Instead of exiting your trades based on price, you exit your trades after X amount of time has passed.
You need to define how much time you will allow before exiting it.
An example:
You took a short trade at resistance area. But after 5 days it’s not going anywhere, so you exit your trade.
time3
Pros:
You reduce losses
If you have trading records, you can identify optimal amount of time to give your trades
Cons:
You may exit prematurely only to see price move in your favor
Structure stop
A structure stop takes into account the structure of the market and set your stop loss accordingly.
An example…
Support is an area where price may potentially trade higher from. In other words, it’s a “barrier” that prevents further price decline.
Thus, it makes sense to have your stop loss below Support. Vice versa for Resistance.
Here’s what I mean:
sl below supportsl above resistance
You want to place your stop loss where there is a structure in the market that can act as a “barrier” for you.
Below is a training video that explains this concept in more detail…
Pros:
You know exactly when you’re wrong because market structure has broken
You’re using “barriers” in the market to prevent price from hitting your stops
Cons:
You need wider stop loss if the structure of the market is large (this results in smaller position size to keep your risk constant)
If you want to learn more, go read 13 ways to set your stop loss to reduce risk and maximise profits.
Now, let’s move on…
What is confluence and how it impacts your trading
Here’s the thing:
You’re not going to enter a long trade just because Stochastic is oversold, or the market is in an uptrend.
You’d need additional “supporting evidence” to give you the signal, to enter the trade. And this “supporting evidence” is known as, confluence.
Confluence is when two or more factors give the same trading signal. E.g. The market is in an uptrend, and price retraces to an area of support.
Here’re two guidelines for you:
1. Not more than four confluence factors
The more confluence you have, the higher the probability of your trade working out. But…
In the real world, your trading strategy should have anywhere between 2 – 4 confluence factors.
Anything more, chances are you’re going to get very little trading setups. And it’ll take you forever before your edge can play out.
You can take mediocre trading setups, and still make money in the long run.
2. Do not have more than one confluence factor in the same category
If you’re going to use indicators (oscillators) to identify overbought/oversold areas, then use that only.
Don’t add Stochastic, RSI and CCI because it’ll leave you with analysis paralysis. Similarly…
…adding simple, exponential and weighted moving average on your charts, doesn’t make any sense.
If you’re still reading at the point, you’re in for a treat. Because here comes the exciting part…
A high probability trading strategy that lets you profit in bull & bear markets
And here’s my secret (which is what you’ve just learned)…
Trade with the trend
Trade at areas of value
Find an entry
Set my stop loss
Plan my exit
If a trade meets these 5 criteria, then its a good trade to me.
Now, let’s learn a new trading strategy, that gives you high probability trading setups.
Are you ready?
Here it goes…
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading with the trend).
If it’s an uptrend, then wait for the price to pullback to an area of support (trading at an area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger).
If there’s failure test entry, then go long on next candle’s open (my entry trigger).
If a trade is entered, then place a stop loss below the low of the candle, and take profit at nearest swing high (my exit and profit target).
Vice versa for a downtrend
**Disclaimer: I will not be responsible for any profit or loss resulting from using this trading strategy. Past performance is not an indication of future performance. Please do your own due diligence before risking your hard earned money.
Here’re a few trading examples:
high probability trading setup3high probability trading setup2high probability trading setup1
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
Here’s the thing:
You may not be comfortable using my trading strategy because it may not suit you.
So, what you need to do is, “tweak” it into something that fits you. And this is what we’ll cover next…
I don’t think traders can follow rules for very long unless they reflect their own trading style. – Ed Seykota
How to develop a high probability trading strategy (a template you can use)
You can “mix and match” different trading techniques I’ve shared with you earlier.
But ultimately, your trading strategy needs to answer these 7 questions:
1. How are you going to define a trend?
You can consider moving average, trendline, structure etc.
2. How are you going to define an area of value?
You can consider dynamic Support & Resistance, weekly highs/lows, Stochastic etc.
3. How are you going to enter your trade?
You can consider pullbacks, breakouts, failure test, moving average crossover etc.
4. How are you going to exit your trade?
There’re many ways to exit a trade. Go read 13 Ways to Set Your Stop Loss to Reduce Risk and Maximise Profits to learn more.
5. How much are you going to risk on each trade?
I would suggest risking no more than 1% of your account on each trade, to avoid the risk of ruin.
6. How are you going to manage your trade?
Will you scale out or scale in your trades? If so, how much?
7. Which markets will you be trading?
Are you focusing on one market or many markets?
If you trade a variety of markets, you want to be aware of the correlation between markets.
Labels: Forex, Investment Quote, Reference, Risk Management, Stock Trading System
20 September 2018
10 Best Trading Tips You Can Learn in 10 Minutes That Improves Your Trading
Credit: Rayner Teo
Have you heard of the “Pareto principle”?
It’s known as the 80-20 rule, where 80% of the results is due to 20% of the effort.
So, what does this mean?
For a business, 20% of its clients produce 80% of its revenue.
For a software, 20% of its features cause 80% of its usage.
And for a trader, 20% of your actions produce 80% of your results.
Now… there are so many things a trader can focus on. Entries, exits, risk management, position sizing, fundamentals etc.
But the question is…
Which are the 20% that you must focus on, to deliver the biggest results?
So, this is what you’ll be learning today…
The 10 best forex trading tips that you can learn in 10 minutes, that will improve your trading immediately.
Are you ready?
Then let’s begin.
10 trading tips
Best forex trading tips #1: Don’t scare yourself out of a trade by going into lower time frames
Look:
If you enter a trade on the daily time frame, then manage that trade on the daily time frame.
A big mistake you can do is, drilling down into a lower time frame, and scare yourself out of the trade.
Here’s what I mean…
micro manage1micro manage2micro manage3
The takeaway is this…
If you enter off the daily time frame, you set your stop loss and manage your trade on the daily time frame.
If you enter off the 1-hour time frame, you set your stop loss and manage your trade on the 1-hour time frame.
If you enter off the 15 minutes time frame, you set your stop loss and manage your trade on the 15 minutes time frame.
Get it?
2. Place your stop loss at a level where your trading setup is invalidated
Don’t set your stop loss based on a dollar amount you’re willing to lose.
Instead…
Set it based on the structure of the markets, where if your stop loss is triggered, you know you’re wrong.
For example, if you’re long at support, then a break of support would mean you’re wrong…
support
Or if you’re trading a breakout, then a close back into the range would mean you’re wrong…
breakout
If you want more examples… go watch this training video below:
3. Trading with the trend increases the probability of your trades
When the market is trending, it has an ebb and flow with two different “legs” in it.
Impulse move – Longer “leg” that trades in the direction of the trend
Corrective move – Shorter “leg” that trades against the direction of the trend
By trading with the trend, you’ll get a bigger bang for your buck as the impulse move is stronger than the corrective move. This gives you greater profitability for the same amount of risk.
Here’s what I mean:
most-bangmost-bang-for-buck-2
The trend is your friend… right?
4. You need to find a trading method that suits you
If you love watching the markets and have all the time in the world, then a long-term trend following approach will not suit you. You’d micromanage your trades on the shorter time frames, and miss the longer term trend.
Or…
If you have a full-time job and can’t afford to watch the markets, then intraday trading will not suit you. You’d miss trading opportunities because you do not focus on the trading session.
Or…
If you love to build systematic trading systems, then learning how to read chart patterns and price action will not suit you. You’d be frustrated because there are some things in the market that can’t be quantified.
So whats my point?
My point is… you need to find a trading approach that suits you, yourself.
Here’s how you can increase the odds of your success:
Adopt a trading method that fits your belief about the markets (if you don’t believe in trends, then trying to be a trend follower is ridiculous)
Find a trading time frame that suits your schedule (if you have little time to trade, stick to the higher time frames)
Don’t hop from one trading system to the next, just because you see another trader having success with it (that’s a sure fire way to remain a consistently inconsistent trader)
5. Don’t abandon your trading strategy after a few losing trades
Why?
Because no matter how good a trading strategy is, in the short run your results are random.
And this can be explained using the law of large number…
If you take a coin and toss it 1000 times, you’d get close to 50% heads and 50% tails.
However, if you toss it 10 times only, it’s unlikely to be 50% heads and 50% tails due to the small sample size.
And its the same in trading…
You cannot conclude a trading strategy doesn’t work based on a small sample size because, in the short run, your results are random.
Instead… you need a minimum of 100 trades to find out whether your trading strategy has an edge in the markets.
6. A trading plan makes you a more disciplined trader
One of the biggest reasons why you fail as a trader is because you don’t have a trading plan.
You’re trading decisions based on your emotions, subjectivity, and opinions of the market.
Getting into trades because:
Of an “insider tip” you heard from a friend
You think price can’t go any lower
You’re bored
And here’s the thing…
If you have an inconsistent set of actions, how do you expect to have a consistent set of results?
Here’s the thing:
The only way you’re going to achieve consistent trading performance is by having a consistent set of actions, and this can be achieved by following your trading plan.
If you want to learn how to develop your trading plan, read this post here.
7. Risk 1% on each trade to prevent your own destruction
Imagine:
You have a trading system that wins 50% of the time with 1:2 risk reward.
And you have a hypothetical outcome of L L L L W W W W
It’s a profitable system, right?
It depends.
If you risk 30% of your equity, you’d blow up by the 4th trade (-30 -30 -30 -30 = -120%)
But…
If you risk 1% of your equity, you’d have a gain of 4% (-1 -1 -1 -1 +2 +2 +2 +2 = 4%)
Having a winning system without proper risk management isn’t going to get you anywhere.
You need a winning system with proper risk management.
And not forgetting…
The recovery from the risk of ruin is not linear, it could be impossible to recover if it goes too deep.
risk of ruin
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
8. You don’t need to know everything to be a profitable trader
Why do I say that?
Because I made the mistake of thinking I needed to know everything, in order to make money from trading.
And my turning point was when I realized that, less is more.
Simplicity is the ultimate sophistication - Leonardo Da Vinci
CLICK TO TWEET
Now, I’m here to tell you this:
You don’t need to know any fundamentals of the market you’re trading
You don’t need to know what the big players are doing
You don’t need to know what is pivot point
You don’t need to know what is a Crab pattern
You don’t need 6 monitors to trade
You don’t need to purchase any proprietary software, tools or indicators
And you can still be a consistently profitable trader.
Now you’re probably wondering:
So, what do I need?
A trading strategy that has an “edge”
Proper risk management
The right trading psychology
Go watch this training video below as I’ll explain further:
9. Keep a trading journal if you’re serious about trading
Do you recall the past trades you’ve taken?
Perhaps there’s a chart pattern that is showing a high probability of success.
Perhaps your trading strategy that isn’t working well in current market conditions.
Perhaps you’re not following your trading plan which is causing your performance to deteriorate.
Now, if you don’t have a trading journal…
How do you know what you’re doing wrong?
How do you know what you’re doing right?
How do you know what can you improve on?
Get my point?
So, if you’re serious about trading, you must have a trading journal. And you can learn how to create one here.
10. One “trick” to improve the returns of your trading performance
No, it’s not adding another “filter”.
No, it’s not adjusting the parameters of your indicator.
Its… knowing when to stay out of the markets.
Here’s an example:
Let’s assume a trend following strategy would make 20% in a trending market, and lose 15% in a range market.
In a given year, the market was in a trend once, and in a range once. Thus netting a return of 5% (20 – 15).
Now, what if you can identify the range market, and stop trading during that period, would your returns improve?
You bet.
Instead of earning a return of 5%, you made 20% because you stopped trading when the markets weren’t favorable.
The takeaway is this…
You need to know when to stay long.
You need to know when to stay short.
And you need to know when to stay out.
Have you heard of the “Pareto principle”?
It’s known as the 80-20 rule, where 80% of the results is due to 20% of the effort.
So, what does this mean?
For a business, 20% of its clients produce 80% of its revenue.
For a software, 20% of its features cause 80% of its usage.
And for a trader, 20% of your actions produce 80% of your results.
Now… there are so many things a trader can focus on. Entries, exits, risk management, position sizing, fundamentals etc.
But the question is…
Which are the 20% that you must focus on, to deliver the biggest results?
So, this is what you’ll be learning today…
The 10 best forex trading tips that you can learn in 10 minutes, that will improve your trading immediately.
Are you ready?
Then let’s begin.
10 trading tips
Best forex trading tips #1: Don’t scare yourself out of a trade by going into lower time frames
Look:
If you enter a trade on the daily time frame, then manage that trade on the daily time frame.
A big mistake you can do is, drilling down into a lower time frame, and scare yourself out of the trade.
Here’s what I mean…
micro manage1micro manage2micro manage3
The takeaway is this…
If you enter off the daily time frame, you set your stop loss and manage your trade on the daily time frame.
If you enter off the 1-hour time frame, you set your stop loss and manage your trade on the 1-hour time frame.
If you enter off the 15 minutes time frame, you set your stop loss and manage your trade on the 15 minutes time frame.
Get it?
2. Place your stop loss at a level where your trading setup is invalidated
Don’t set your stop loss based on a dollar amount you’re willing to lose.
Instead…
Set it based on the structure of the markets, where if your stop loss is triggered, you know you’re wrong.
For example, if you’re long at support, then a break of support would mean you’re wrong…
support
Or if you’re trading a breakout, then a close back into the range would mean you’re wrong…
breakout
If you want more examples… go watch this training video below:
3. Trading with the trend increases the probability of your trades
When the market is trending, it has an ebb and flow with two different “legs” in it.
Impulse move – Longer “leg” that trades in the direction of the trend
Corrective move – Shorter “leg” that trades against the direction of the trend
By trading with the trend, you’ll get a bigger bang for your buck as the impulse move is stronger than the corrective move. This gives you greater profitability for the same amount of risk.
Here’s what I mean:
most-bangmost-bang-for-buck-2
The trend is your friend… right?
4. You need to find a trading method that suits you
If you love watching the markets and have all the time in the world, then a long-term trend following approach will not suit you. You’d micromanage your trades on the shorter time frames, and miss the longer term trend.
Or…
If you have a full-time job and can’t afford to watch the markets, then intraday trading will not suit you. You’d miss trading opportunities because you do not focus on the trading session.
Or…
If you love to build systematic trading systems, then learning how to read chart patterns and price action will not suit you. You’d be frustrated because there are some things in the market that can’t be quantified.
So whats my point?
My point is… you need to find a trading approach that suits you, yourself.
Here’s how you can increase the odds of your success:
Adopt a trading method that fits your belief about the markets (if you don’t believe in trends, then trying to be a trend follower is ridiculous)
Find a trading time frame that suits your schedule (if you have little time to trade, stick to the higher time frames)
Don’t hop from one trading system to the next, just because you see another trader having success with it (that’s a sure fire way to remain a consistently inconsistent trader)
5. Don’t abandon your trading strategy after a few losing trades
Why?
Because no matter how good a trading strategy is, in the short run your results are random.
And this can be explained using the law of large number…
If you take a coin and toss it 1000 times, you’d get close to 50% heads and 50% tails.
However, if you toss it 10 times only, it’s unlikely to be 50% heads and 50% tails due to the small sample size.
And its the same in trading…
You cannot conclude a trading strategy doesn’t work based on a small sample size because, in the short run, your results are random.
Instead… you need a minimum of 100 trades to find out whether your trading strategy has an edge in the markets.
6. A trading plan makes you a more disciplined trader
One of the biggest reasons why you fail as a trader is because you don’t have a trading plan.
You’re trading decisions based on your emotions, subjectivity, and opinions of the market.
Getting into trades because:
Of an “insider tip” you heard from a friend
You think price can’t go any lower
You’re bored
And here’s the thing…
If you have an inconsistent set of actions, how do you expect to have a consistent set of results?
Here’s the thing:
The only way you’re going to achieve consistent trading performance is by having a consistent set of actions, and this can be achieved by following your trading plan.
If you want to learn how to develop your trading plan, read this post here.
7. Risk 1% on each trade to prevent your own destruction
Imagine:
You have a trading system that wins 50% of the time with 1:2 risk reward.
And you have a hypothetical outcome of L L L L W W W W
It’s a profitable system, right?
It depends.
If you risk 30% of your equity, you’d blow up by the 4th trade (-30 -30 -30 -30 = -120%)
But…
If you risk 1% of your equity, you’d have a gain of 4% (-1 -1 -1 -1 +2 +2 +2 +2 = 4%)
Having a winning system without proper risk management isn’t going to get you anywhere.
You need a winning system with proper risk management.
And not forgetting…
The recovery from the risk of ruin is not linear, it could be impossible to recover if it goes too deep.
risk of ruin
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
8. You don’t need to know everything to be a profitable trader
Why do I say that?
Because I made the mistake of thinking I needed to know everything, in order to make money from trading.
And my turning point was when I realized that, less is more.
Simplicity is the ultimate sophistication - Leonardo Da Vinci
CLICK TO TWEET
Now, I’m here to tell you this:
You don’t need to know any fundamentals of the market you’re trading
You don’t need to know what the big players are doing
You don’t need to know what is pivot point
You don’t need to know what is a Crab pattern
You don’t need 6 monitors to trade
You don’t need to purchase any proprietary software, tools or indicators
And you can still be a consistently profitable trader.
Now you’re probably wondering:
So, what do I need?
A trading strategy that has an “edge”
Proper risk management
The right trading psychology
Go watch this training video below as I’ll explain further:
9. Keep a trading journal if you’re serious about trading
Do you recall the past trades you’ve taken?
Perhaps there’s a chart pattern that is showing a high probability of success.
Perhaps your trading strategy that isn’t working well in current market conditions.
Perhaps you’re not following your trading plan which is causing your performance to deteriorate.
Now, if you don’t have a trading journal…
How do you know what you’re doing wrong?
How do you know what you’re doing right?
How do you know what can you improve on?
Get my point?
So, if you’re serious about trading, you must have a trading journal. And you can learn how to create one here.
10. One “trick” to improve the returns of your trading performance
No, it’s not adding another “filter”.
No, it’s not adjusting the parameters of your indicator.
Its… knowing when to stay out of the markets.
Here’s an example:
Let’s assume a trend following strategy would make 20% in a trending market, and lose 15% in a range market.
In a given year, the market was in a trend once, and in a range once. Thus netting a return of 5% (20 – 15).
Now, what if you can identify the range market, and stop trading during that period, would your returns improve?
You bet.
Instead of earning a return of 5%, you made 20% because you stopped trading when the markets weren’t favorable.
The takeaway is this…
You need to know when to stay long.
You need to know when to stay short.
And you need to know when to stay out.
Labels: Forex, Investment Quote, Stock Trading System
