If you lost money trading in 2016 here is my xmas gift to you

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propwarrior

This is going to be short and sweet. I will lay it out in 10 posts and why this and nothing else will work for 90%+ people. I am a trader and I fully expect people to troll the hell out of this thread. Do I trade like this? No. but is a component in price I watch for and in addition I am not telling you to trade like this. Before it starts, No, I do not teach, No I do not mentor. Is this my material? No. The schematic is pulled straigt from google images and originally appeared in Wyckoff's work 100 years ago. If you are a profitable trader please just move along to the next thread, this thread is for losing traders only.

I will start with 2 images. First the schematic and second today's price action in spot EURUSD.
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Post 2 of 10

The chart of EURUSD in post 1 was posted in real time. See chart below of current price action and where price went. Look at the blue lines I drew to indicate the likely path of price and compare to what happened after.

Stops/Targets/Entries, RiskReward, Trading Money, What to Trade

Stops – Once the conditions for taking a trade have been triggered (see ‘triggered’ notation in post 1) price should not return below price points where stops have been taken (see ‘stops taken’ in post 1).

Targets – These are immediately above swing highs created on the way down prior to conditions being present and triggered. Whether you use ‘set and forget’ targets is up to you and whether you have the time/knowledge/experience to be able to manually manage trades. If you are struggling I would use ‘set and forget’ 2R:R to 3R:R. Whether you scale in/out of positions is up to you, personally I trade all in/all out.

Entries – You should devise a way of getting into the market on your own by studying at least 50 examples of the schematic in your lower timeframe of choice. Buying pullbacks into support could work. I suggest 15m timeframe for day trading and hourly or above for swing trading.

RiskReward – Look for 2:1 minimum 5:1 maximum. At 2:1 you only need a 40% strike rate to have a good edge.

Trading Money – You should only trade with micro stakes AFTER you have traded your methodology in SIM for a minimum of 50 (100 better) trades. Never risk more than 1% of your trading capital ever.

What to Trade – Any commodity, Any FX pair (I would avoid crosses), Any equity indices, Any liquid stock but be mindful of gaps.

In the next post (3 of 10) I will outline why none of this thread (or anything else) will work for 95%+ of you.

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*Clearly I am only showing a buy example here. Everything can be reversed for a sell example.
 
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Post 3/10

Why nothing in this thread (or anything else) will help 90%+ of you

This is the most important post in the thread. What separates winners and losers in this business is their ability to not make and continue not to make the below mistakes. Losing traders will continue to make the same and new mistakes over and over again. The key is to stop trying to make mistakes and just stop them. The vast majority of aspiring traders will not be able to stop the below behavioural mistakes, this is why even if someone tells you exactly what to do you will still fail. You must adopt a winning mindset of someone who does not make mistakes and have lapses, you need to fully commit. Never associate with losers or with anyone who has a losing mentality. Over time you will stop these mistakes as your behaviour becomes automatic. If you cannot stop making these mistakes the best advice I can give you is to quit trading.

The classical mistakes

Lack of focus on one market nuance

I have outlined a specific price behaviour that occurs in the markets and given conditions where a trader can find a substantial edge. The majority of people cannot put dedicated work into one thing. The majority of people will not follow my instruction of going through the charts on their chosen timeframe and find the 50 (minimum) examples, study them to the point of obsession and make it their own. They will get distracted by many thoughts, for example another trading idea or method, they will mix/match/distort. Others will say to themselves ‘it cannot be this easy’. You shouldn’t take what I am saying as an edge. You need to prove it to yourself. Humans are confused by choice, it is that simple, in trading you need to be single minded to the point of obsession.

Patience & Discipline – the widow maker

Once conditions for a trade setup have been clearly established most people cannot sit there and wait for those conditions to appear and then and only then act. I can’t put it any simpler than that. This is a very basic skill a trader must learn. If you cannot control yourself and only act in the conditions that have been clearly established there is literally no hope you will ever make it. Most people will get bored and start looking for ‘extra’ setups or try and make whatever current price is showing to enter right NOW. At the time this will be justified as a one off or a separate trade system. Most traders are locked in a cycle of constantly trying something new when in reality trading is about doing the same thing over and over again.

The fact is if you give someone EXACT instructions on what to do most will fail. Take the example of someone who is obese. I could give them exact instructions of what to eat every day and what simple exercise to do every day and within 1 year they would be the correct weight with very mild discomfort on the journey. How many of those people would follow it? <5%. It’s the same in all facets of life only a small % resolve themselves to achieve something.

Leverage & Psychobabble

My opinion is that nearly all of the psychobabble you hear about in trading is rubbish. Think about it, when do people consult a psychologist, when they are sick. What I am suggesting is that people only consult a trading psychologist or zen guru when they are a losing trader. If you were making money consistently you wouldn’t need the psychobabble. Forget this nonsense, just follow my method and cut out the mistakes. Stop trying and just stop. If you lapse take a break then resolve to not do it again. If you keep lapsing you should quit.

It doesn’t matter that you tell people to never risk more than 1% of their account on any one trade. It doesn’t matter that you tell them to only trade micro stakes and scale up slowly AFTER proving to themselves their methodology is profitable by making 100+ SIM trades. It doesn’t matter because most people will not follow this, they try and take shortcuts and then they blow up and blame the system not themselves.

The root cause of over leveraging is that with the account size the trader has they cannot make a meaningful amount of money in 1 week. I will lay this out nice and simple. If you take 1 trade per day risking R and you have a 50% strike rate on 2:1 RR you expectancy is 0.5R. Your expectation is 2.5R for the week. If you risk the maximum 1% you should be risking that is 2.5%. If you account size is $10k then if you are extremely successful and trade very well you will make $250 for the week. The fact is that is not meaningful to someone in a developed country. Trust me only $1000 per week will pass the meaningful test. So you will need an account size of $40,000 to make a meaningful amount per week. This is the root cause of why people who have <$40k accounts overleverage.

Do you think it is easier to stay patient and focussed if you take a $400 loss on a $40k account or a $1000 loss on a $5000 account. This is why people go off plan, lose focus. After 3 losses in a row they get wound up and frustrated and then go in maximum clip and the losing cycle continues. With a 50% strike rate you will have many times when you get a string of 4,5,6+ losers. If you are risking more than 1% you will blow up your account.

If you don’t have a $40k account then you have to accept that your returns are not going to be meaningful. This means not over leveraging a small account and saving money from an hourly wage. Again <5% of people can do this. In my opinion you should not be trading at all if you have <$40k savings. In any developed country it is possible to save $1k per month doing unskilled labour unless you are disabled. If you want it bad enough you will do this and cut your costs. Again <5% cant or wont do this.

The Day trade small account fail

Day trading requires complete focus during the main market volume hours. You cannot work at the same time. You either need to move to longer time frames H4+ which is perfectly possible with this methodology and continue working OR switch to a job that is evening and weekends only. If you have <$40k in savings you should be working and saving. Again <5% wont do this.

A note on studying for a degree. Most people will fail at trading for all of the above reasons. In my opinion you should never quit studying to try and trade. You can study and swing trade if you want it badly enough.

Listening to others

Never listen to others, trading is not a team sport. Don’t listen to me, all I am saying is if you are not making money then follow what I say and see what the results are. Follow it properly though, don’t skip, don’t cut corners.

Broker Fail

Only use a broker which is regulated in the US or UK. Only ever deposit enough cash in your account to cover the margin for your trades. So if you have a $40k trading account, you only deposit what is needed to cover the margin c. $5k-10k. The balance should be held in a cash savings account.


Compound Mistakes

It is not enough to cut out most mistakes you need to cut out all mistakes. eg. You cannot master patience and over leverage and expect to be successful. You cannot cut out all mistakes apart from trading on your phone from work. You cannot have excellent money management skills whilst flipping between strategies. I can’t make it any simpler than that.

The topic of the next post will be time frames & instruments.
 
Post 4/10 Timeframes, Instruments & Targets

The price behaviour seen in the schematic in post 1 can be seen in all timeframes and the instruments I indicated in post 2. I show below 4 examples of assorted instruments and timeframes.

Example 1 H4 Treasury Bonds

Example 2 Weekly Nasdaq Futures

Example 3 H1 Orange Juice Futures

Example 4 H1 USDCHF

Note the trigger point in each example. This occurs when the clearest swing high (in an up move) or swing low (in a down move) prior to the climax is taken out by price.

Note where there are ‘stops taken’ this is where a clear previous swing high or low is taken out and rejected. These are more prevalent on lower timeframes but can exist on higher timeframes. They are also more prevalent in forex and commodities and less common in rates markets (bonds, notes, bund, cgb etc.)

Note targets marked with red lines. As per previous example I have marked targets at clear swing highs/lows on the previous moved down/up. I have now also included targets at the last swing high/low of the move immediately prior to where there were ‘stops taken’.

Sometimes you will get setups on longer term time frames, see example 2 which is a weekly timeframe setup. You then may be able to see a lower time frame setup, eg. 15m within the price structure of the higher time frame setup.

It is stating the obvious that targets are not always hit. If you place your stop in places where price should not go (behind where stops are taken) you will often be achieving 2,3,4,5 RR depending on how refined your entries are. It is up to you to make sure you manage trades properly, as I said before if you are really struggling then just use a fixed 2 to 3 RR. Don’t get hung up on squeezing out every last tick to a target. A losing traders mentality would be to snatch at winners very early OR not take a profit when price hangs around 2 ticks from a longer term target. A winning trader will bank instantly if price stalls just before a target and they already have 2,3,4,5 RR.

Next Post will be on ‘stops taken’

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