- 05 Nov 2016, 16:43
#213
Plan Your Trade and Trade Your Plan!
Who has never heard it and who really apply it?
Do you want to become a MASTER of your Forex trading strategy? If so, you will need to have laser-beam like focus, you cannot waver and change strategies every week like many amateur traders do.
Trading is not a Get Rich Quick Scheme, Trading is a Business, even if you can multiply your account exponentially in a short period of time. If you are not consistently growing your account like 95 % of traders around the world, then you should continue reading this post.
Your goal as a trader is to achieve Consistency trough a proven methodology and a Statistical Edge.
To properly assess your trading performance, you must focus your efforts on accurate strategy execution and logging your trades properly, rather than the outcomes themselves. Consistently successful traders do not focus on the outcome of an individual trade, they focus on the result of a series of trades. Every strategy will have losing trades, so the outcome of an individual trade should be irrelevant. The only factor should be that the trades are taken in accordance with your plan – this way, the conclusions you are able to draw from your results are far more likely to be reliable. Additionally, if you make sure that you periodically review your results (either weekly/monthly or every x trades is a good start) rather than interpreting them as they happen, you’re going to get a much more accurate and objective picture of how good a strategy is.
“Paradox: Random Outcome, Consistent Results” – Mark Douglas.
“Here's an interesting paradox. Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behaviour is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, non-random outcome produce consistent results, and a random outcome produce random, inconsistent results?
What casino owners, experienced gamblers, and the best traders understand that the typical trader finds difficult to grasp is: even that have probable outcomes can produce consistent results, if you can get the odds in your favour and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling.
To illustrate, let's look at the game of blackjack. In blackjack, the casinos have approximately a 4.5-percent edge over the player, based on the rules they require players to adhere to. This means that, over a large enough sample size (number of hands played), the casino will generate net profits of four and a half cents on every dollar wagered on the game. This average of four and a half cents takes into account all the players who walked away big winners (including all winning streaks), all the players who walked away big losers, and everybody in between. At the end of the day, week, month, or year, the casino always ends up with approximately 4.5 percent of the total amount wagered.
That 4.5 percent might not sound like a lot, but let's put it in perspective. Suppose a total of $100 million dollars is wagered collectively at all of a casino's blackjack tables over the course of a year. The casino will net $4.5 million.
What casino owners and professional gamblers understand about the nature of probabilities is that each individual hand played is statistically independent of every other hand. This means that each individual hand is a unique event, where the outcome is random relative to the last hand played or the next hand played. If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands. But on a collective basis, just the opposite is true. If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome”.
Extract from the book Trading in the Zone – Mark Douglas.
I really invite you to read this book if you haven’t already.
• The result of 1 trade is like flipping a coin, you have 50% chances to win or lose the trade.
• The result of a series of trades will increase odds in your favor as a pattern will emerge.
For any given strategy, you need to build confidence in your strategy and yourself.
The following challenge should help you to achieve consistency and to get the confidence you are looking for.
The 20 Trades Challenge:
This challenge is taken from Mark Douglas book and can be applied to any instrument and strategy.
01 – Statistical edge
===================================
Choose whichever strategy/edge that you want to test.
02 – Methodology, Management
===================================
Whatever the strategy you are planning to challenge, learn its rules, even prepare a cheat sheet with the rules. What are the Entry criteria’s, the timeframe used, the Money Management, the Trade Management, the Exit Management…?
03 – Trade in Sample Sizes
===================================
“Trading in Sample Sizes. The typical trader practically lives or dies (emotionally) on the results of the most recent trade. If it was a winner, he'll gladly go to the next trade; if it wasn't, he'll start questioning the viability of his edge. To find out what variables work, how well they work, and what doesn't work, we need a systematic approach, one that doesn't take any random variables into consideration. This means that we have to expand our definition of success or failure from the limited trade-by-trade perspective of the typical trader to a sample size of 20 trades or more.” – Mark Douglas
Instead of judging your strategy at the end of each trade, you will monitor the sum total of 20 trades.
Basically, you will have to monitor your trades whether they were taken according to the strategy rules or not (a mistake). A Mistake is any trade that you may have taken where you failed to follow the strategy.
04 – Risk Management
===================================
You must use the same risk or position size for all 20 trades. You cannot risk 1% on one trade and 2% on the other. This is a requirement for this exercise to work correctly.
So, when you take a trade you should know exactly how much you're going to lose if it hits your stop loss. And you have to accept this 100%.
05 – You are the Casino
===================================
Begin the challenge, now you are the Casino.
Do not deviate to the plan (rules), do not use different templates, do not try different timeframes, stay on the chosen timeframe and do exactly the same trades over and over.
Whether your trade is a winner or a looser, check if you followed strictly the rules of entry, exit and money management.
• If the answer is yes, reward yourself.
• If the answer is no, pat yourself on the back and say NEXT;
After 20 trades, check your progress (Review Your Journal) and check if you were 100% disciplined in terms of following the rules of the strategy.
Your 1st Goal is to learn to trade the chosen strategy. Your 2nd Goal is to Maintain 100% discipline every Set of 20 Trades.
It does not matter if you made money or lost money as a result of an individual trade or even as the result of the set of 20 trades. What matters is whether you followed the rules 100%. If the strategy has a statistical edge, it will bring you profit in time but you have to follow the plan 100% with complete confidence and discipline. And confidence is built step by step.
You will Learn a lot about yourself after you've completed this exercise, if you feel the fear do it anyway.
You must have fun trading. Make sure you are always in a good mood while trading and do ever thing it takes to create a stress-free environment. One option is to take the money out of the equation. Because most of the stress is caused by Fear of Losing Money. So, trade Demo Risk and Care Free.
Create an environment where you can maintain 100% focus as well as peace and calm. And don't worry about making money. If you worry too much about making money, chances are you may end up not making money. But if you focus on trading according to your strategy, with fun and joy, the money will be taken care of itself.
80% of Trading Success is in The Mind. Once you understand and believe that “consistently successful trading” is the process and a function of achieving consistency you will have confidence, you will experience no fear or greed. You will easily enter "The Zone".
Attached you can find a spreadsheet which can help you to compute your results:
You just have to fill the rows after each trade. If you want to fill the pip values for your SL and your Take Profit, and you don’t know them, you can use the Report tool available here at GiG forum.
Each time you have followed strictly the strategy’s rules, whatever the trade result, input 1 in the Discipline score, if not, input 0. The Discipline score (the main information), is highlighted in Red.
The 20 Trades Challenge is an exercise of Consistency.
So anytime you are testing a new strategy or feel fear trading, challenge yourself!
Who has never heard it and who really apply it?
Do you want to become a MASTER of your Forex trading strategy? If so, you will need to have laser-beam like focus, you cannot waver and change strategies every week like many amateur traders do.
Trading is not a Get Rich Quick Scheme, Trading is a Business, even if you can multiply your account exponentially in a short period of time. If you are not consistently growing your account like 95 % of traders around the world, then you should continue reading this post.
Your goal as a trader is to achieve Consistency trough a proven methodology and a Statistical Edge.
To properly assess your trading performance, you must focus your efforts on accurate strategy execution and logging your trades properly, rather than the outcomes themselves. Consistently successful traders do not focus on the outcome of an individual trade, they focus on the result of a series of trades. Every strategy will have losing trades, so the outcome of an individual trade should be irrelevant. The only factor should be that the trades are taken in accordance with your plan – this way, the conclusions you are able to draw from your results are far more likely to be reliable. Additionally, if you make sure that you periodically review your results (either weekly/monthly or every x trades is a good start) rather than interpreting them as they happen, you’re going to get a much more accurate and objective picture of how good a strategy is.
“Paradox: Random Outcome, Consistent Results” – Mark Douglas.
“Here's an interesting paradox. Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behaviour is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, non-random outcome produce consistent results, and a random outcome produce random, inconsistent results?
What casino owners, experienced gamblers, and the best traders understand that the typical trader finds difficult to grasp is: even that have probable outcomes can produce consistent results, if you can get the odds in your favour and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling.
To illustrate, let's look at the game of blackjack. In blackjack, the casinos have approximately a 4.5-percent edge over the player, based on the rules they require players to adhere to. This means that, over a large enough sample size (number of hands played), the casino will generate net profits of four and a half cents on every dollar wagered on the game. This average of four and a half cents takes into account all the players who walked away big winners (including all winning streaks), all the players who walked away big losers, and everybody in between. At the end of the day, week, month, or year, the casino always ends up with approximately 4.5 percent of the total amount wagered.
That 4.5 percent might not sound like a lot, but let's put it in perspective. Suppose a total of $100 million dollars is wagered collectively at all of a casino's blackjack tables over the course of a year. The casino will net $4.5 million.
What casino owners and professional gamblers understand about the nature of probabilities is that each individual hand played is statistically independent of every other hand. This means that each individual hand is a unique event, where the outcome is random relative to the last hand played or the next hand played. If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands. But on a collective basis, just the opposite is true. If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome”.
Extract from the book Trading in the Zone – Mark Douglas.
I really invite you to read this book if you haven’t already.
• The result of 1 trade is like flipping a coin, you have 50% chances to win or lose the trade.
• The result of a series of trades will increase odds in your favor as a pattern will emerge.
For any given strategy, you need to build confidence in your strategy and yourself.
The following challenge should help you to achieve consistency and to get the confidence you are looking for.
The 20 Trades Challenge:
This challenge is taken from Mark Douglas book and can be applied to any instrument and strategy.
01 – Statistical edge
===================================
Choose whichever strategy/edge that you want to test.
02 – Methodology, Management
===================================
Whatever the strategy you are planning to challenge, learn its rules, even prepare a cheat sheet with the rules. What are the Entry criteria’s, the timeframe used, the Money Management, the Trade Management, the Exit Management…?
03 – Trade in Sample Sizes
===================================
“Trading in Sample Sizes. The typical trader practically lives or dies (emotionally) on the results of the most recent trade. If it was a winner, he'll gladly go to the next trade; if it wasn't, he'll start questioning the viability of his edge. To find out what variables work, how well they work, and what doesn't work, we need a systematic approach, one that doesn't take any random variables into consideration. This means that we have to expand our definition of success or failure from the limited trade-by-trade perspective of the typical trader to a sample size of 20 trades or more.” – Mark Douglas
Instead of judging your strategy at the end of each trade, you will monitor the sum total of 20 trades.
Basically, you will have to monitor your trades whether they were taken according to the strategy rules or not (a mistake). A Mistake is any trade that you may have taken where you failed to follow the strategy.
04 – Risk Management
===================================
You must use the same risk or position size for all 20 trades. You cannot risk 1% on one trade and 2% on the other. This is a requirement for this exercise to work correctly.
So, when you take a trade you should know exactly how much you're going to lose if it hits your stop loss. And you have to accept this 100%.
05 – You are the Casino
===================================
Begin the challenge, now you are the Casino.
Do not deviate to the plan (rules), do not use different templates, do not try different timeframes, stay on the chosen timeframe and do exactly the same trades over and over.
Whether your trade is a winner or a looser, check if you followed strictly the rules of entry, exit and money management.
• If the answer is yes, reward yourself.
• If the answer is no, pat yourself on the back and say NEXT;
After 20 trades, check your progress (Review Your Journal) and check if you were 100% disciplined in terms of following the rules of the strategy.
Your 1st Goal is to learn to trade the chosen strategy. Your 2nd Goal is to Maintain 100% discipline every Set of 20 Trades.
It does not matter if you made money or lost money as a result of an individual trade or even as the result of the set of 20 trades. What matters is whether you followed the rules 100%. If the strategy has a statistical edge, it will bring you profit in time but you have to follow the plan 100% with complete confidence and discipline. And confidence is built step by step.
You will Learn a lot about yourself after you've completed this exercise, if you feel the fear do it anyway.
You must have fun trading. Make sure you are always in a good mood while trading and do ever thing it takes to create a stress-free environment. One option is to take the money out of the equation. Because most of the stress is caused by Fear of Losing Money. So, trade Demo Risk and Care Free.
Create an environment where you can maintain 100% focus as well as peace and calm. And don't worry about making money. If you worry too much about making money, chances are you may end up not making money. But if you focus on trading according to your strategy, with fun and joy, the money will be taken care of itself.
80% of Trading Success is in The Mind. Once you understand and believe that “consistently successful trading” is the process and a function of achieving consistency you will have confidence, you will experience no fear or greed. You will easily enter "The Zone".
Attached you can find a spreadsheet which can help you to compute your results:
You just have to fill the rows after each trade. If you want to fill the pip values for your SL and your Take Profit, and you don’t know them, you can use the Report tool available here at GiG forum.
Each time you have followed strictly the strategy’s rules, whatever the trade result, input 1 in the Discipline score, if not, input 0. The Discipline score (the main information), is highlighted in Red.
The 20 Trades Challenge is an exercise of Consistency.
So anytime you are testing a new strategy or feel fear trading, challenge yourself!
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G
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