The four pillars for trading success

The four pillars for trading success

We all wish trading came naturally to us; after all that would’ve meant saving countless hours, (a lot of) money, friendships that were broken after having a shitty day in the market

Oh and these reflect my personal views and experiences, I am sure you could argue for something different

What are those four pillars?

(Wish their was like a way to drop a curtain or something)

  1. Persistence
  2. Risk Management
  3. Psychology
  4. Trading Edge
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Let’s break these four pillars into a section each:

Persistence

Trading is difficult. Like any other skill it will take time to master, the only way to through the deep water is to preserver, if you haven’t given up you haven’t failed.

As long as you get back up after being pushed back down there is still hope.

That being said, having fallen off (many) horses it does take persistence to get back up on the horse, the same goes with trading, there will be losses, there will be mistakes, but there is a need to continually get back up and get ready for another try.

There is also an undeniable need to spend countless hours in front of charts in order to develop and test an edge and persist until we feel comfortable with our own strategy

Trading is all about survival, protecting the assets we have, making them grow, without getting killed. Keep that in mind.

Image result for persistence quote paramahansa yoga

This point is rather straight forward so there’s no real value spending too much time dealing with it, we are left with

  1. Risk Management
  2. Psychology
  3. Trading Edge

Risk Management

Risk management is probably the first subject new trades should look into, we can break it down into two topics: protecting the initial capital and an understanding of probabilities.

Protecting the initial capital

One of the best ways to screw up your psychology and give up is by taking huge losses that will destroy the size of the trading account

In order to protect the initial capital, it is key for traders to understand how to size their positions and (ideally) maintain a constant risk profile.

Why is it so important to avoid large losses?

If a single trade isn’t properly sized, it is possible for a trading account to be blown – by that I do mean, it is possible with one trade to lose all the money (and potentially more) you have in the trading account…

Let’s dive into “smaller losses”:

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A 10% loss requires you to make 11% back in order to get back to the starting point, which when we think about it, isn’t that bad, it could be worse… However, if you take a 50% loss then you will need to double your account in order to bring it back up to the starting size…

Yep…. Here’s the example:

10,000+10,000*(-0.5) = 5,000

5,000*X=10,000

X= 2

(Mainly wanted to show the benefits of getting a university degree, I can do maths now 😊)

The key lesson here is:

 MAKE SURE YOU DON’T SCREW UP THE POSITION SIZE

The likelihood of you preserving and not screwing up your mental game after such a loss is extremely low so… If you want to have a career in trading, make sure you size your positions correctly.

Image result for it's not about being right or wrong soros

Understanding probabilities

Now this one may seem a bit more obvious, but over many discussions I’ve realized it may not be the case

There will be winning trades, but there will also be losing trades, this is a given, anyone that promises you a 100% strike rate is either into high frequency trading (and works at a huge fund) or is trying to get your money, and the likelihood of the second far outweighs the first…

Now it’s let’s dig into why I think it is key to understand your trading edge and your numbers (more on that afterwards)

If you are a trader you may have a 45% strike rate (it is possible to be profitable with a lower strike rate, as it is possible to be a consistently bankrupt trader with a higher strike rate)

As you can see on the following image, you have a 72% likelihood of taking 6 losses in a row over 50 trades taken, yep a 72% likelihood, that’s freaking surprising eh

The likelihood of taking 7 losses in a row is at a “more acceptable” probability of 49% (which is still super high!?)

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Knowing the probability of taking 7 losses in a row is close to 50%, no better than flipping a coin, how much should you risk?

If you risk 5% per trade, you shall be down 30.2% (assuming you adjust your $ risk after each trade) that means you’ll have to make back 43% to get to the level you were before this losing strike… A rather big number if you ask me – however if you only risk 1% then you’re only down 6.8%

Let’s say you’re trading a 100,000$ account, I would highly prefer being down 6,800$ instead of 30,200$… Can you imagine the impact on your psychology? I would be devasted with a 30.2% loss

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Don’t forget, trading is a survival game, and you can only survive if you protect your initial capital and risk the right amount… Don’t show off… Now onto

Psychology

Probably the less fun part of trading for most of us (I’ll admit, I actually love it!) but you’ve probably heard it from many people psychology is key for traders, it may even represent 80% of the work you need to do to become a profitable trader

Now what are common traps we can fall into

  1. Sticking to our bias
  2. Trying to prove we know better
  3. I can’t lose so risking more
  4. I just need to get even
  5. I’m just one trade away from being profitable this month

I always used to get told off for doing more than five bullet points but there’s so many other examples!

So how can we have a profitable psychology?

  1. Focus on the process – they do not care about being right or wrong
  2. Understanding the numbers linked to your trading strategy
  3. Having strong opinions weekly held and being willing to flip sides
Image result for psychology trading quote

The most important part of trading is understanding that the market doesn’t care about you, and you shouldn’t really care about it. Instead focus on the process, be willing to jump ship and understand nothing is guaranteed in the market.

Instead, focus on yourself, spend time off the charts, recharge, meditate, empty your mind, and execute your trading plan

The worst enemy you have is yourself – and sadly you’ll never really get to beat him to the ground, even the famous Greek philosophers sometimes had urges (some were also doing the exact opposite from what they preached…)

Image result for conquer yourself zeno of citium

Truly believe I can’t make a better point than Yvan:

Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.”

Yvan Byeajee, The essence of trading psychology in one skill

Try calming your mind, ideally empty your mind from all greed hesitation and passion, instead remain neutral and in control. The best way to do that is to meditate, and if you refuse to do that, go for a thirty minutes walk without your phone, just paying attentions to your thoughts, it should help you drop all those negative charges.

Tihbo puts it beautifully

Now I could spend an entire day ranting about the importance of psychology but I believe this is a journey you alone can take since it is deep inside you and no matter how many quotes I put in front of you the decision to let go and become present is yours.

Having a trading edge

Yep, this is the last point… Not necessarily because I believe it’s the less important, but you can make money with so many different markets and in so many different ways, you can skin the cat yourself.

However, it is extremely important to have identified your trading edge and be able to prove it exist in the historical market without having to adjust it, that’s one of the main problems quants are faced with, they adjust their strategy so it provides great returns in the past but does not work when the market conditions change

So what do you have to do?

Back test your strategy over several years and several pairs, forecast possible moves, use your trading plan with a reduced risk for the first few months in order to make sure the edge is there

Understand that even a profitable strategy will have losses

Here’s an example of my go-to set-ups after having backtested it over a few pairs for 2019

I have come to realize, that two of my favorite set-ups are not very profitable for me (the 3rd rejection and the hover) therefore I will have to adapt, another key point is understanding that my strike rate (without including BE) is of 34% however as you can see the returns are profitable, because my average win is a lot bigger than average loss.

Keep on working, keep on testing your strategy and never become over confident, because that will be your end.

The end 😊

Before I ask you to like this post and share, I would like to thank both Tiho Brkan and Yvan Byeajee I most of the data I used came from their tweets!

What do you think are the key pillars for success in the FX market?

Hope you enjoyed this article!


Onwards,

-Max

Work as a digital nomad

Digital nomad & work

One of the most frequent questions I get is: “How do I get work done while traveling?”, so will try to answer this one.

I feel like I’ve already used this photo

I DON’T DO ANY WORK…

I spend my days at the beach taking photos duh.

Okay, that’s a lie (I hope you knew that!)

The truth is, it’s not because you’re a digital nomad that you won’t be doing a lot of work – the amount of work you need to do is the exact same as if you were living at home.

But it does depend on your work, as a FX trader, I spend around three hours a day doing work, but that’s a normal amount of work for any trader? (Do you spend more time on the charts?)

All I need is to forecast, review my past trades, do some backtesting and watch some content in order to maintain my skill at the same level.

That being said, there are days where I spend a lot more time, if I am motivated I can very easily get into a backtesting session and spend around eight hours on it, because I love it.

That being said, if you are not self employed and instead get paid on an hourly basis (which is what I do on the side), you will have to spend hours doing work in order to go paid and finish the task you were assigned, and you’d do the exact same workload as if you were home.

But here’s where the “good shit” comes in…

If you’re in a country where your living expenses are half what you used to spend it’s rather easy to reduce your workload (still recommend getting more hours done than the bare minimum) – so instead of working 8 hours you could work 6 hours rather easily?


Where to work?

That’s the interesting/challenging part, I do try to spend more money on airbnbs where I know I shall be able to get work done in the mornings.

One of the challenges of being a nomad is that you never really have an office, especially if you change location rather often and there’s no co-working space close by that offers a “hot desk” membership.

You need decent wifi in order to be able to do your backtesting and watch content, and that’s not a given sadly…

To be entirely fair, “developing” countries (Indonesia, Poland, Colombia, Lebanon,…) please don’t bully me for putting Poland there… the wifi is a hell of a lot better than in developed countries when it comes to working in coffee shops.

So the answer is:

I usually work at home during my “productive” hours – the first three hours – if there’s a desk, one of my requirements for airbnbs (highly recommend it),

I like outdoor standing (home made) desks

Then go out and do work at a coffee shop, however the work done in coffee shops is a lot less productive than at home, but I need the change of scenery – and it’s easier to keep doing work when you’re not the single one, otherwise the urge to go out and explore is super strong

Be a tourist for the afternoon, then get more work done in the evening at home or with a glass of wine!

That being said, if you are spending a month or more in one location, I highly recommend joining a co-working space, you’ll not only get to meet other self employed individuals and make friends but you’ll also get into a habit of working from there, which is great because you have a separation between home and work, something that’s not really possible when working from home.


Growth as a digital nomad

Now, as I just talked about, it’s rather easy to get work done as a digital nomad, you just have to say “fuck you” to your excuses and remember that you are only able to travel because of the work you do, hence, you need to prioritize the work over being a tourist.

That being said,

I don’t think living as a digital nomad is the best way to grow your business, instead, I would even argue it’s a bad idea

If you are aiming to scale your business, launch a new product, create a new offering, or even increase your returns as a forex trader or even learn an entire new trading style you’d be better off staying in one place

I’m not going to write too much about this, because I think Iman Gadhzi did a great job explaining it in this video, highly recommend it, shows the life about being a digital nomad, but after the six minute mark he talks about the downside of Variation and being a digital nomad.

You want to be repetive, you want to do the same shit, you want to have your routine, you don’t want to do new stuff every day, have a schedule, make sure you’re productive.

Anyway, hope you’re well and enjoyed this blog post!


Onwards,

Oh, and, if you’ve enjoyed this blog post, would mean the world to me if you left a like or a comment 😊

The right questions

That’s a bloody heavy title… Definitely not going to be able to address it within one blog post, but…

I just listened to an enjoyable podcast with Warren Berger and Shane Parish on Fs.blog and they talk a fair amount about questions…

Here’s a quote from Warren Berger that explains why I believe asking the right questions is key

Now, yes, that can easily be understood for engineers, for entrepreneurs and scientists, but what about traders?

Questions for traders

What is the market?

It helps to think about the entire market, what is the stock market? why does the stock market (on average) go up? Why do currencies exist? Why are there several currencies? Why is the price of a certain currency worth more than another one? How can I forecast that?

Now this won’t improve your trading 10-fold I’ll give you that, but having a larger understanding makes the next steps a lot easier…

Plus, the more you learn the more intrigued you’ll be trust me, I’ve fallen into a dark rabbit hole more times than I wish to admit

Why FX?

You can easily ask yourself, why do I trade FX? Why do I trade this way? Why do I need a trading plan? (I hope by now you know why you need one!!!! Otherwise this blog has failed you I’m sorry! :S ) What are the positives and downsides of having a trading plan? What will I learn from my trading plan?

(A previous blog post about trading plans can be found here!)

Knowing the answers will give you the motivation to build one? You can ask yourself the same questions about anything btw, would that be why you want to trade full-time, why you need a routine, why you should eat healthy etc

How do I trade?

How do I build the right foundations to become a full-time trader? What is the process I should follow to achieve my goals? What set-ups am I allowed to trade? Why can I trade those set-ups and not others? Why is limiting the number of trades I take good?

Those questions will probably make you understand that sticking to your plan has way more benefits than downsides, you will understand that the only reason you trade those set-ups is because you are playing out an edge with a positive expected value and you definitely don’t want to start playing around because that will costly…


So many question marks…

What questions to ask?

Now I’m not going to list hundreds (I easily could) questions instead here are a few questions I like to ask myself

Why did I take this trade? Does this trade fit my trading plan? Did I forecast it?

Why will the price go in that direction? What is the structure telling me?

Should I stay out? Why shouldn’t I pull the trigger on this position

What would my mentor say if I took this trade?

Would my mentor take this trade? Does it fit with his previous “behavior?”

Why would this trade turn out to be a loss?

How will I feel after taking this loss?

Am I still happy taking this trade?

Hope those questions help you.

I truly believe that everyone has the answers to the right questions (yes even you!) you just need to ask yourself the right questions…

If you can’t answer a question, then dig into it? Ask yourself what do you need to know in order to answer it?

Ask yourself questions and the following questions


How do you make money trading while traveling?

I trade currencies

How do you I make money trading?

By betting that a currency is going to be worth more than another one

Why are currencies worth something?

Because it’s a store of value

How do we know what value that is?

Ugh… I’m not digging my own hole, I’d need an entire semester to debate this

How can you analyze that one currency is going to be worth more than another?

Well, there’s fundamentals, news, technical analysis, etc

I use technical analysis…

What is technical analysis?

It’s looking at the historical movement of price and forecasting that it will do something similar in the future

How do you forecast it?….

You get it by now right? I can stop this game?

Please.. Say yes…


Ask yourself the right questions and your trading and life will improve. Sometimes those answers will force you to look up something else to be able to answer it but in the end you’ll be better off

It’s easy to make something sound complicated, the truly hard part is to make something that’s really complicated sound simple

Eheh, didn’t use Einstein for this one!

Once you are able to explain your trading strategy, why you take certain trades and not others you’ll have truly mastered your trading plan, and that’s exactly what successful traders do – it makes executing it a lot easier!

It’s only with the right questions that our lives can improve

Most of the biggest discoveries started with why or how, so get used to those two words and use them!


Anyway, I will definitely fall into a rabbit hole if I keep writing this post, I hope you enjoyed it! If you did, please do leave a like or a comment 🙂

Onwards

Fear

Fear in the FX market

Now, it may sound strange, why would a trader be scared? I mean, it’s not like he’s risking his life (Well, make sure you manage your risk…If you don’t then yep… I guess)

A good FX trader executes his trading plan with no fear.

A losing trader does not execute his trading plan BECAUSE of fear

Have you ever not taken a trade because you were scared? Scared of losing, scared of being wrong, scared of not being good enough, scared of losing money, scared of what other people will think of you etc?

Hell, I have…

The main idea behind this blog post comes form the book “Way of Warrior Trader” in it there’s a great section about fear

According to the author – there are three instinctual fears: fear of loss, fear of pain and the fear of the unkown

I mean, why are we scared of getting killed by an alligator?


1- Afraid of the pain you would experience while getting chewed up by the alligator’s jaws

2- Afraid of losing your identity as you’re being digested in the alligator’s stomach

3- Afraid of not knowing where you’ll end up two days later after passing through the alligator’s guts

Way of the Warrior Trader

Makes sense right?

I mean I wouldn’t want to be killed by an alligator (well, definitely would be interesting)…

So why are we talking about this?

(Nearly) all fears we are faced with are either anticipatory or reflective in nature


Fear of the future

We are scared of the unknown, the unknown we are all faced with is the future.

We don’t know what will happen today, and even less so in the markets since we don’t control them (kinda wish we could manipulate them for my own benefit…)

Not being an author I’ll quote the book again because he puts it better than I could:


To render repeated attention to issues that are currently outside our perimeter of control is a waste of life force and a distraction away from the situations we do have an element of control over in the present moment.

Way of the Warrior Trader

Instead of being worried about what will potentially happen in the future, focus on what you can control – and that is the execution of your trading plan.

So what are a handful of tips to control your fear when it comes to placing a trade?

1- Forecast every single morning, and only take the trades you forecasted

2- Have a trading plan – and know the strike rates and expected return every set-up has

3- Backtest, that’s the only way to do the first two points, so keep backtesting

4- Focus on your breath – try to breathe deeply into your abdomen, it’s linked with the vegus nerve that will make you more calm (and also reduce heart beat I believe)

5- Meditate (eheh you thought I’d have given up on this one by now) it will make focusing on the present moment and push away all thoughts a lot easier


Scared of success?

Being scared of succcess, may sound like a strange thing, but it happens to a large amount of forex traders and is one of the main reason why traders blow up their accounts

Ed Seykota is a smart dude.

We all get what we want from the market in the long run

The biggest challenge you will face in the FX market is your mental side. Make sure your mindset is in the right place.

Once again, I swear this is (probably) the last time I quote him for this blog post


Nothing can weaken your resolve to follow through with a plan more than the lack of genuine desire to achieve the end result.

Without such a plan, you can be assured that one or more of the four poisons of doubt, fear, confusion and surprise will eventually infect your mind. Effective planning will always help to minimize (if not eliminate) these poisons.

Way of the Warrior Trader

Accept the loss, understand that you don’t know the future and you’re just playing out an edge, take the position and be happy whatever happens next because you executed your plan.

Executing your plan is the goal, ignore the end result.


Cool video by AK Fallible about fear in the market! Love his channel, definitely would reocmmend

Make sure you’re not afraid to take the trade if it fits your trading plan

Yep, a trading plan, backtesting and forecasting is key, what can I say 🙂

By having a trading plan you outsource the trading (to you) so you get to delegate the responsibility! Definitely checkout the last part of that video tho – one of my fav. scenes in Billions hands down ahah


If you think that it’s the mental side that’s holding you back definitely check out the book, I did enjoy it and hit me up with your questions!

I love digging into peoples brains 🙂


Anyway, have a good one, I hope you enjoyed this blog post! Let me know in the comments if you want me to do more post like this!

Onwards,

Building a Trading Plan

Having your own trading plan, is (probably) the most important part to become a successful trader, would that be stocks, FX, commodities or whatever you want to trade.


Why is a trading plan so important?

It gives you the opportunity to write down exactly what you can do and how you should do it.

It’s like a cooking book, the only way to really improve a receipe is to know what ingredients to use, the amounts and how long you should cook it for.

I’m awful at cooking (Really bad, my old roommates refused to eat anything I cooked)

I know how to make salads tho, that’s the only thing I’m decent at!

Why do you think I spend so much time in cheap countries where I can eat out three times a day?? (Maybe it’s because I don’t need to cook)

Anyway, back to the subject at hand…

Becoming a good cook is relatively easy, you just follow instructions, it’s the “chef” that makes up the dish and writes down how to do it properly.

You can work in a great restaurant and make a lot of money if you’re a really good cook, especially if you work well with a famous chef.

Trading, is rather similar to working in a restaurant (not talking about the insane hours, but sometimes…)

The only way to become a chef (a really really good trader) is to become a cook (someone that can implement a trading plan), it will take time, but the more practice you get as a cook the easier it will be for you to become a chef.


Ask for help building your first trading plan

You become a good cook by learning from others how to cook, would it be your parents, siblings, a cooking book, youtube videos, an online course, a bootcamp etc etc

It’s the same with trading.

Learn from someone else

Find yourself a mentor, whoever that is (not me) and ask them if they can explain to you their trading style and share trades they took.

Once you know how they look at the market, the trades they took you can break it down.

Bring a bottle of coke to a lab and they can reverse engineer it.

You could know the exact ingredients Coca Cola use for their famous drink.

Do the same with a trading plan.

Create your first trading plan based on someone else, even better, if you can copy it. My mentor shared his to all his students, that’s what I used at first.

I knew:

  • The entry types
  • What he wants to see in order to take a position
  • How he manages trades
  • How he records them
  • His risk profile

That’s all I needed, I more or less copy pasted it at first.


Once you have a trading plan, backtest it

Now it’s time for you to work, you can’t let someone else do all the work for you…

You know what set-ups your mentor looks for so go and backtest.

Try them out, figure out their results and ask yourself

  • Do they have a good strike rate?
  • What is their average return?
  • Do I like trading them?

Based on those questions and the answers you have for them you can quite easily make your mind up, should you keep those set-ups in your trading plan? It’s up to you.

Those are my results with a backtesting exercise I did earlier this year.

I was able to figure out which trade set-ups I prefer and how I wanted to manage them.

It also gave me a lot more confidence in my trading, I saw what was possible, and it became way easier for me to execute on my trading plan.

Once you’ve backtested your plan you can then decide what to edit, what to change, what to ignore, what you want to focus on etc…


Make it your own.

Make sure it becomes your own, don’t copy the exact same trades if they don’t fit you, adjust the trading plan to your own personality – and backtest it once again – it’s all about refinement,

To go back to the cooking comparison, a chef will try out so many variations of the same dish just to make sure he has the perfect mix of flavors, smells and texture.

It’s the same with trading, just keep trying it out.

Tweak it until it becomes your own, your precious, your trading plan.

Now, you can easily argue that you don’t need to write it down, it’s in your mind, or you can easily draw it.

But…

The best way to learn is to teach someone else.

But you don’t need to teach someone else, you just need to be able to explain it on a word document.

Take screenshots of your favorite set-ups

Write down what you want to see before being able to take a position

Explain how you are going to manage your position once in the trade

What are your rules in term of taking a second trade once you got tagged out of a position, are you allowed to re-enter? Once? Twice? Three times?… Create rules and put it in your trading plan.

If you want a video about creating a trading plan, check-out this interview on Chat with Traders, I’ll admit, I have only watched it once, but Chat with Traders is hands down one of the best podcasts out there for anyone interested in trading.

Now I feel like I’m probably rambling… but…

GET YOURSELF A TRADING PLAN.

Honestly, I truly believe it’s the best way to improve your results if you’re in the FX market.

Copy someone else trading plan, (or spend countless hours trying to build one)

Backtest it (it’s worth doing the work!)

Refine it

Make it more personal, something that fits your personality

Backtest it again, keep updating it

Write down your rules

Stick to it.


The only way you can improve your trading is to have a process, otherwise you may just be lucky or unlucky but you wouldn’t know because your trading is not consistent.

Being consistent with your process, will turn you into a consistently profitable trader.

Anyway, I hope you enjoyed this article, if you did it would mean the world to me if you could share it! Or let me know in the comments what you would do!

Not doing shit is key.

Let me rephrase: Not taking trades is key.

Yep, you read that right, I’m here to say that doing absolutely nothing is (a hell of a lot) better than taking trades every single day.

Okay, this subject is mainly going to be about trading and investing, but it may apply to over industries too…

Do you know why you shouldn’t take too many trades? (Think about it for a few seconds)

Just wanted to give you a few seconds to think – I’m not addicted to pineapple photos!

There are three key reasons you may have thought about:

1- Trades in your trading plan don’t happen every single day so you definitely shouldn’t be taking more trades than what your plan tells you to. (Absolutely agree with this one)

2- Your broker commission, hell, I enjoy trading with FXCM, I don’t have (too many) issues with them, yet I’m still paying 5% of the risk I am willing to take per trade on average… (Fuck… I just realized it, it’s way too much )

3- Focusing on quality trades instead of just average trades.

I’ll mainly focus on this third point (even though the commission one just pissed me off ugh)


The importance of focusing on quality trades & not over-trading.

This may sound pretty obvious, but sadly it’s a lot harder to actually follow this rule. Mark Hutchinson (from Falcon Trading) brought up an interesting concept.

80% of the trades taken should be high probability trades and the other 20% can be valid trades.

You want to wait for those high probability set-ups before putting a trade on, but sometimes you can have a gut-feeling the trade will just go in your favor before you see the perfect set-up and you should still act on it.

I really like that rule, usually my trading follows a very similar breakdown between valid and high probability, and I do believe it’s really beneficial for me.

That being said, I didn’t stick to it last month (July) and I ended up having a negative month… Yep… It happened I have no shame, I committed a few mistakes, anyway, that’s not the subject.

You may know of Michael Marcus (he was one of the traders interviewed in Market Wizards) who, in less than 20 years, managed to turn 30,000$ into $80 million trading commodities.

I really like this book…

One of the quotes of his I really enjoyed is:

“One of the secrets to trading success is cutting down the number of trades you take”

When someone with his track record talks, I tend to listen, and that advice, is (I think) spot on.


Taking too many trades reduces the quality of your portfolio

Now let’s think about an investment portfolio, your returns will be the sum of all the trades and opportunity cost is really important here (in FX too due to leverage requirements) …

If you take trades that have a lower expected value you’ll reduce your overall yearly return and therefore make less money while increasing your risk, is that something you’re into? (I’m definitely not, I want the opposite)

I came across a cool website by Safal Niveshak – which I would highly recommend checking out (especially if you’re into investing)

The last article he posted was: Is your stock portfolio a warehouse or a museum?

In it he argues that we want our stock portfolio to be a museum and not a warehouse, which makes sense, so do go and check-it out

In it he quotes Jason Fried book Rework (a book I really enjoyed) :

“You don’t make a great museum by putting all the art in the world into a single room. That’s a warehouse. What makes a museum great is the stuff that’s not on the walls. Someone says no … There is an editing process. There’s a lot more stuff off the walls than on the walls. The best is a sub-sub-subset of all the possibilities.”

Jason Fried – Reword

Makes sense when explained like that? Right? We want our trade portfolio to be a “sub-sub-subset of all the possibilities” and only the ones where we truly believe to have an edge in.

From there, he picks the explain of Costco v. Walmart

Yep a screenshot, I’m lazy

We want to focus on returns on invested capital, 28% sounds a lot more attractive to me than 12% (which is still good).


Less is better – quality over quantity.

Now in this part of the post I’m really tempted to bring up Bruce Lee quote about not fearing a man that practiced a thousand kicks once, but fearing a man that practiced one kick a thousand times (see what I did here?) but that won’t be my main focus.

Instead I’ll just pick a recent example

One of my friends (Aldo) realized that taking better trades is not only more enjoyable but also doesn’t necessarily reduce your trading returns. Especially while traveling and not being able to spend as much time on trading.

That being said, I’m kinda forced to bring it up, I mean I love the guy…

Bruce Lee has another quote (not about the number of kicks this time)

He probably didn’t say this quote thinking about investing or trading, but it applies to everything in life.


Anyway, I hope this was helpful.

If this was useful and you enjoyed reading it, it would mean the world to me if you’d leave a like or even commented 🙂

Cheers!

Turning your hobby into your “job”

Congrats! It’s amazing you’re at this point!

If you’ve recently came to realize you could take your side hustle/passion and make it your primary source of income congrats! That’s amazing, I still remember the day I realized I could sustain myself trading forex – was when I was writing cover letters for jobs just before graduation, I didn’t end up applying for those jobs after that realization (except one, McKinsey but they shot me down – something I’m grateful for)😊

But yeah, congrats, that’s really impressive! Would it be trading, photography, your blog, designing cool tee-shirts or whatever it makes me so happy when I hear people are making a living doing what they love.

Maybe you take photos of fruits and vegetables and somehow managed to turn it into a business… I mean it looks cool!

That being said, it’s not because you are able to go and turn your hobby into your sole income that you should quit your job or become a digital nomad – first you need to transform it from a hobby into a business and start looking at it that way.

When it’s a hobby it’s amazing, you get most of the upsides and you are quite blind to the downsides while being able to stop whenever you wish since that’s not the only thing you do.

Be prepared for the transition!

If you decide to take your trading and make it your income source and quit your job then be prepared for:

  • Having lower returns that what you’ve come to expect in the first first few months since you’ll have some added stress, it happens to a lot of people who just took the jump
  • Create a rather strict routine, it’s not because you don’t need to be at the office at 8 or 9am that you should still be in bed… You will have nearly no external barriers to becoming a couch potato, you will be the responsible for everything. While making sure you prioritize sleep, I didn’t in the past, and that’s one of my biggest regrets, making sure the brain gets its off time is really important
  • See your income fluctuating, you won’t be making the exact same amount every month/every quarter (which is why I believe it is extremely important to have a six-month cash buffer before taking the step (mainly to reduce the pressure)) That being said, if you make three times more (on average) than what you spend you can probably just take out a fixed amount every month/quarter depending on your choice.
  • You’ll spend way more time on your computer (next to an ikea plant)thinking that it will mean you will make more money – sadly that doesn’t go in hand, I wish it did, but instead it’s actually important to start disconnecting from the charts, if you spend too much time looking at them you will likely want to take a trade or micro-manage them – which in turn will probably have a negative impact on your income/returns.
  • Accept the fact that your passion is now your job, which means you will need to find a new hobby and start learning something new in order to maintain your self development and your brain plasticity.

An advice I would give to anyone about to go full-time with their trading or side hustle would be to measure the amount of time they spend on it while still spending time at their job. Why?

If you spend an hour and half on the charts while working per day, make sure you don’t spend more than three hours (the double amount).

I understand that it may sound counter-productive, after all, you have now way more time to improve your craft and boost those returns, but if you were able to get to this point and replace your income with if there’s no need to spend that much more time working on it. There’s a point where spending more time will not only bring you diminishing returns but also reduce the enjoyment you get from it.

Something Neil Cartwright also points out is keep doing what brought you to this point, keep doing the exact same thing, don’t become too cocky, it’s not because your trading as really improved that you should stop your previous routine, if you used to watch content everyday, keep doing it, if you were meditating, keep doing it, if you were back testing three times a week, keep doing it. You probably got the point by now, but, just keep doing whatever you used to do.

It brought you here so it must be a good thing!

Now it’s your primary income… It’s a business

Now it’s a business, so start thinking about your monthly costs, how can you optimize and streamline the process, how can you leverage up and increase your profits, get in touch with a great accountant and figure out how to reduce your taxation etc etc.

While talking about the business side it’s also important to mention the fact that most successful businesses don’t pay out a 100% dividend, instead they constantly re-invest in the company (usually they do it to buy new machines or have more marketing or hire more staff, for us that just means leaving money in the trading account).

Wish my reports looked this cool

Now, if you’ve already been on this blog you’ll have noticed I also provide a monthly trade recap, which is basically an overview of my month (I have one way more detailed that I keep for myself) but the reason I do this, is because I’m treating my trading as a business.

Businesses need to publish quarterly income statement and all the other stuff, why wouldn’t you? If you run a business selling tee-shirts, wouldn’t you be looking at your revenue/profit/ad spend/ROI etc? If you don’t I would be surprised if your store keeps on going.

If you own a coffee shop, I’m sure you will be looking at your profits, revenue, costs etc while trying to figure out a way to boost your profits and potentially open in a new location?

Trading is a business, so make sure you spend time treating it as one. Don’t forget to think about the monthly reports, create a trading report where you will write down every single trade you took, the return, the reason for the entry and exit and all of this.

Obviously, you will have to keep doing your Advanced Self Review and spend time trying to find the tweaks you need to go through in order to improve.

A good example would be my mentors, even tho they have been trading for more than five years profitably they are still reviewing their months in order to make sure they are still on their top game and continuously improving.

Make sure you still enjoy it – and don’t only do it for the money

It’s not because you are going to turn your hobby/passion into your primary income source that you’ll start to despise it, I still enjoy trading and learning about the market remains one of my favorite things to do. But, you must start treating trading as a business instead of a fun activity you do because you think it’s nice side income or just because you want to keep yourself busy. We all get what we want from the market, so make sure you align your wants to this new reality.

Lastly, it’s something I’ve only recently started to realize but it’s not because you are now making money doing something you love that you should be blind to other opportunities. Diversity in your income source makes you anti-fragile and that should be the end goal.

Aim to become anti-fragile – being self-employed and having turned your passion into your income source is fantastic but keep in mind there’s no shame starting something new on top of that or even potentially getting a job in a industry you’re really interested in.

And I definitely recommend picking up this book, Nassim Taleb is one of my fav. authors 🙂

For example, I’m really into space because my long-term goal is in that world, if I get the opportunity to work in a cool start-up with really smart individuals in that industry I’d jump on that chance.


Anyway, I hope this was helpful.

I hope this was useful! If it was it would mean the world to me if you’d like this post or even leave a comment if you’d add something to this article!

Cheers!

10 common ways trader beat themselves

Knowing the issue will help, I hope.

Let’s face it, trading isn’t as easy as it appears to be while trading either demo or (especially) on Instagram if you follow any of those gurus or even ever posted a photo with #forex and heard about how Mr. X. just sends you signals and you can become a multi-millionaire following them starting with 50$.

But it’s possible, I mean yes it’s hard, but running a mile under 4 minutes is possible, more than 1,400 individuals have beaten it, but no-one had ever managed until one person did – and he didn’t have any super powers knowing that others have now managed (and beaten him).

I’m in no way comparing running a mile under four minutes to being a profitable trader, I think the run is a hell of a lot harder – and the numbers probably prove that.

BUT, in both cases it required a lot of training, visualization and time in order to achieve it. I think it’s rather similar

Roger Bannister is the one that did it first!

Anyways, here’s what I think are ten small challenges that traders are often faced with


1- No patience, they expect to be profitable from the get-go

We all dream to be able to pick up trading within a month, but that’s not really the truth, I mean you can learn quite a lot in a month, (highly recommend reading Scott H Young blog) but a to become a lawyer you’ll have to study for around five years? A doctor? Even more no?

I mean, the same goes with anything, you can’t expect to become a professional footballer by just playing for a month

Another example would be video games, I mean if you start playing League of Legends to playing professionally within a month? It’s possible, but good luck

(I already wrote about this, but during the first three years I lost money every single time… Yep… That happened)


2- Do not understand the true nature of variance

Trading is all about probabilities, I mean screw that, it’s not even exact probabilities, but yep, it’s all about applying your edge over and over again.

Variance is the technical term that we use to describe the routine ups and downs that are built into trading, poker and so many different “industries” in which there is a large amount of short term luck involved.

It’s important to remember that it’s possible to “run bad”, sometimes even if you only take high quality trades you can still take three, four, five losses in a row, you need to accept it.

We need to think like a casino, don’t focus on one day, instead focus on the bigger picture

Even if you have a 60% probability of getting a winning trade (so 40% chance of a loss) you can still take a loss – I mean there’s a 1% chance of taking 5 losses in a row if you have a 60% probability of success.

There’s not much you can do about it, it’s just probabilities. That’s why you shouldn’t focus on the short term, instead look at your results on a monthly (and even that) basis, even better look at them on a quarterly and yearly basis.

Trading is and always will be a long term game. That not only applies to Forex trading, or penny stocks or even equity trading, anything that is a question of probability will be a long term game.


3- Failing to maintain their risk profile the same

The issue with changing your risk profile is that it screws up the entire probability model – if on one trade you risk 1% and another one 4% but the probabilities of them happening is the exact same – can you please tell me why?

The only reason I see is because somewhere your confidence increased or you wanted to make more money without really considering it

That being said, if one type of trade you take has a 70% probability of playing out, and another one a 40% and you know those stats because you have taken those trades a hundred times or more then that’s fair.

I personally only risk 1% while trading because I believe my trading plan is profitable.


4- Don’t stick to their trading plan

If you have a strategy, stick to it.

Don’t change your type of trading and chase a shiny object all the bloody time.

Don’t try tweaking your strategy after a month and decide to follow a completely different way of trading every month, that just isn’t going to workout sadly – you will just get stuck in this negative environment and get stuck – never fully seeing the results you want.

(Sorry not writing much on this one, it’s pretty straight forward).

Okay, I don’t have my trading plan on a white board, but you get the idea (I want a white board for that reason tho – I think it’s amazing)

5- Over-thinking

Don’t get me wrong, thinking and making sure you take the right trades is bloody important – but there’s a point where it’s too much.

If it’s in your trading plan, take the trade, if it’s not don’t.

Make sure you are a trader during the week, not an analyst.

By that I mean, during the weekend it’s really important to forecast all potential scenarios and figuring shit out. Once the market is live tho, you must be willing to jump into trades if they are in your plan. Don’t hesitate, just pull the trigger.

Another issue can be learning too many strategies – don’t get me wrong, I love learning more about macro trading, trading news and all those cool different ways to trade the FX market, afterall it’s my passion, but make sure you stick to what works fo you and don’t try to mix up too many things, find your niche and work on it. Once you have an extremely solid foundation then you can start adding more confluence factors on top of it, but it’s important to keep it simple.

I love the “KISS” acronym, I think that’s key to trading too – keep it simple stupid (short).


6- Not enough capital

If you are planning on going full-time within a year that’s more than possible, people have done and people will keep doing it, but it also depends on how much capital you have and how much you need to maintain your life style

If you need 4k per month to maintain your current lifestyle, trading with a 20k account is probably not enough, you’d need to make 20% per month to achieve that monetary return and that’s without even including taxes.

But if you have 100k accessible to you – it becomes a lot easier – instead of having to make 20% you could just make 4% – which is still a lot tho…

If you have a lot more then it becomes easier yep

Be like Scrooge 🙂

So make sure you don’t have unrealistic expectations, you will need some capital in order to make it & on top of that will need to have money saved up on the side – you don’t want to feel the need to make money every month, and accept the fact that you will never make the exact same amount month to month, this isn’t a job.


7- Not being willing to spend the time in front of the charts to learn

You will have to sacrifice a certain amount of time, would it be a few hundreds or more you will have to there’s no choice.

If you’re reading this pretty obscure blog I’m sure you’ve already heard of the 10,000 hour idea to become a master at any craft – would that number be right or not, it’s for sure going to take time.

As much as I wish you could learn all about it by reading blogs and books it’s not really possible. You will definitely have to spend time back testing your strategy but also spend time learning in a live environment, it’s way different than paper trading, trust me on that.

On top of that, even once you are full-time you’ll need to actually be in front of the charts when there’s a trade.

The 4hour work week isn’t really a thing, you will have to be in front of the charts when a trade alert is triggered. But sadly, trade alerts don’t always happen exactly when you want. It’s important to realize that. A lot of people talk about taking trades while going to the bathroom while working – it’s never been to that point for me, I just have trading view open on my laptop but… It could be your reality


8- Not studying their past trades – both willing and losses

Best way to discover what you are good at and also missing out on is to review your own actions. It’s great to learn how someone else trades and getting their own perspective on how to do something, but in the tend trading is a lonely game, it’s all about you.

The only way to get to the next step is review what you do right and what you do wrong and work on improving those things.

Jared Tendler (he has a cool interview with Chat with Traders) has a great concept, the inchworm, I’m going to do a blog post about it in the future, but it’s mainly about this:

In life we are the average of what’s great and what’s shit about us. To improve you need to get your positive even further along that side of “greatness” but you also need to improve the lower end on that curve, things you suck at, because once again, you are the average of those great and “shitty” things.

Make sure you know what you are doing good, and what you suck at, that’s the only way to improve.

Airports are actually rather good for those sessions

9- Revenge trading

It feels good to take another trade after being tagged out – I swear – it gives you control on what’s happening instead of being incapable of controlling the market (I wish my trading account was big enough, SEC come to me (please don’t use this against me in a case).

But, taking a trade because you just got tagged out isn’t the best thing, make sure it’s a valid trade, heck, sometimes it’s worth taking another shot at a potential trade, but… as a rule of thumb, it’s not.

Understanding your emotions is key, acting on them less so, especially in trading, when it comes to relationships it can be useful, but not for trading.

Denise Shull is my go to when it comes to emotions and trading, highly recommend it. I think it’s called Market Mind Games – it’s basically Wendy Rhoades in Billions.

Denise Shull has a great series of videos with Real Vision


10- Not knowing when to disconnect from the charts

That’s one of my favorites, the reason most people get stuck into a bad spree is that they decide to micro-manage all their positions, jump on the 15 minutes then the 5minutes.

Not disconnecting from the charts will really make you want to trade more often, it will also make you want to micro-manage your positions, it’s really not going to be any good.

Go out, enjoy life, spend time with friends and family, learn how to do something new, enjoy it.

Enjoying beers during sunset seems like a rather good way to disconnect to me

Focus on trade execution, not your PL

That’s probably the hardest part of trading, or at least it is for me, I mean it’s human, we correlate making money to doing good because that’s how we are brought up – if you do well you will be rewarded. It’s pretty counter-intuitive that doing something great will end up making you lose money.

(Maybe if we were to give more to charity that wouldn’t be the case, but I am myself not the biggest donor out-there so I am not going to preach you to do something I personally do not do)

But in trading you will have to accept the fact, sometimes a “perfect” trade will be a loser.

Sometimes I feel like this when it happens – shouldn’t but hey I’m human

Sometimes a shitty trade you definitely shouldn’t have taken will result in a winning trade.

Yet, you should feel bad about yourself when you make money by taking trades that aren’t part of your trading plan, and feel great when you end up losing capital when taking a trade that fits your trading plan.

We are in the industry of playing out our edge, the aim is to stick to it and in the long-run avoid fucking it up.

Sometimes a “perfect” trade will be a loser.

(that does suck, but you have to accept it)

One trick you can do to start accepting the fact that you will take amazing trades – that result in losses is look at the balance statement of your favorite company. Are you thinking about Amazon? Tesla? Blizzard? Starbucks?… Whatever it is, they all have costs associated with their business, even your local coffee shop (even if you live in Amsterdam)

Try to understand and see trading as a business, not as something entirely different.

Another trick to trade your plan instead of your profit and loss is, once you are in a trade, hide your risk reward – instead of managing it according to your potential return it really increases the likelihood of you moving your stop according to the structure instead of potential return

EU on the 19th of August

For example, I am currently short on EUR/USD my stop is “randomly” placed a 1.14% profit, had I placed it at 1.25% or 1.5% I would be out of this trade by now, I barely stayed in it

The only reason I placed it at that level is because I didn’t know it was 1.14%, otherwise I would’ve made it a round number

If you use tradingview to get your charts, here’s how to hide your RR tool:

Don’t forget, trading is a business, you will incur a loss and a similar business model to ours would be a casino, they make insane amount of money every single year, but they have down days too when there’s a really good/lucky player betting big

Like read this:

The University of Las Vegas found that the 23 Vegas casinos bringing in over $72 million each in the 2013 fiscal year ended up with over $5 billion of their visitors’ money, altogether. That’s an average of over $630,000 a day, per casino

All they do is apply their small edge day in day out and they don’t care about the daily or even weekly profit, they know that in the end, they’ll make money.

We are in the same game.

Focus on your trading execution, not your PL

Steps I took to improve my trading results

Thought I should talk about a few tips that have helped me progress with my trading journey, hope this post can be helpful if it is!


Having a routine & time blocking

This has been a real game changer, especially when traveling around, since I always have an urge to go out and explore and it becomes extremely easy to jump off the wagon.

I believe that having a morning routine, (I’m not talking about your beauty routine) will really enable you to level up. I can’t recommend enough to always wake up at the same time and do the exact same things in the same order every single day. This will really enable you to create a structure in your day and your brain will be ready to work

No more procrastination!

And more time to relax!

Checkout the video of Michael Bamber on youtube if you want an example of a routine

It’s not my routine, but he’s a good guy!

By following the same routine, you will be ready for the next step even before it happens since it will become programmed into your subconscious.

If you’re not careful it becomes extremely easy to start your morning by checking all your messages which will put you in a reactive state of mind, then opening tinder to see if you got any new matches which shall put your ego in the driver seat etc.

The second benefit of having a routine is that it becomes extremely easy to schedule time for deep work – in the above example, you know that once you get home from your walk you will be fully focused on one task with no distractions for the next hour, so you are already prepared to really give everything.

Sometimes I do some work!
Sometimes I do some work!

By time blocking I mean spending an hour on one specific task while having put your phone on the airplane mode, turned your notifications off your laptop and ban yourself from procrastinating. If you want more info about time blocking, I highly recommend you message Jake Andrew on Instagram, he’s the one that got me into it.


Zooming out & looking to the left

By zooming out I mean having a large amount of candles in front of me instead of only looking at the last few hours – to make it easier to understand here’s a comparison between how “zoomed in” I used to be to how “zoomed out” I have now become

(the difference between being too zoomed in and looking at the bigger picture

This has been a huge gamer changer since not only has it made all the impulses look a hell of a lot smaller and therefore reduced my temptation to take trades after seeing them impulse.

Instead you’ll notice that they barely moved on the larger timescale. Another benefit of zooming out is that it enabled me to have a better understanding of how a pair behaves– has it been trending upwards or downwards or just correcting in a large “box”.

Reduced my temptation to take trades

Better forecasting

Looking left – to the previous price action is also really important since you are able to quickly notice how the pair usually behaves.

For instance I took GBP/CHF in July at a risk entry, but once I realized that the price action wasn’t that clear anymore I did not feel any FOMO closing down the position for breakeven because after looking to the previous price action it was clear that it would give me a lot of opportunities to re-enter the trade.

On top of having a better understanding about how the price is currently moving as well as how it behaves it also enables you to use the bar pattern tool on tradingview in order to copy past price action movement and paste it to today in order to compare what happened then and what is happening now.

Really cool tool —> Here we can see that the current PA does resemble to the past

Even though there will never be the exact same set-up, it becomes a lot easier to imagine what could happen when you have a real live example.


Focusing on the higher timeframes

As I love trading and I absolutely hate waiting, which if you know me personally you will have noticed I thought that I would never say this but, jumping in and out of trades based on their lower timeframes hasn’t been the best to me. Instead it costed me a lot of money, especially when I was introduced to the 15min because I was seeing potential trades everywhere.

It is a common saying in the trading community that multiple timeframe analysis is the key to success in the market and I cannot agree more – it is by combining several timeframes that you will really jump forward in your journey. If the higher timeframes and the lower timeframes both point in the same direction the likelihood of the move taking place is a lot higher.

Multiple timeframe analysis is the key to success

Read this, accept it and implement it

For example, if you have been dating someone for the last five years, live together, have a great sex life and are happy together the likelihood of them saying yes if you propose is a hell of a lot higher than if you were to proposed to someone you picked up in a bar a few hours ago. That’s basically how I see the multiple time frame analysis 😊

More seriously, focusing on trading with the higher timeframes will also enable you to trade less frequently which will not only reduce your commission costs but also reduce the stress you are faced with while  also help you become a lot more patient since you know the potential move is large and that you will be presented with a large amount of opportunities.

Another benefit of trading with the backing of the higher timeframes is that you are then able to trade with the trend, which in turn means you will have momentum traders pushing the prices in your favour while also enabling you to place large profit targets.


Meditating

I’m thinking of doing a post by itself on the benefits meditating has had on me and my trading but thought I should talk about it in this one too!

There are many benefits of meditating, however since we are more interested in trading I will bring up a few points that are targeted to it

Having started meditating I am now a lot better at controlling my impulses which in turn has made revenge trading and trying to catch falling knives a lot less frequent, I am not going to say it is the only reason I have managed to reduce those occurrences but it for sure is a key part

Be like Ray Dalio. He’s happy, smart, investing in making this planet better & rich. Listen to his advice

It has helped me deal with my ego – which is not a necessarily something you want to delete – since it has enabled me to reflect on actions I have done and also adopt the right mindset, being willing to review what I did and why I did it while also really increasing the amount of time I can focus on the task at hand (and in turn increased my productivity)

Honestly struggling to chose a 3rd point here, but I’ll go with happiness, it has made me a lot happier and more comfortable with who I am and reduced the need to prove everyone I am good enough, which was one of the issues I was dealing with – I always wanted to be able to pick a reversal to prove I knew the market direction instead of waiting for it to show it’s hand.

And yes, I still don’t understand how you’re supposed to sit

I really believe that everyone should try to pick up meditating and commit to it for at least three months because for the first month you probably won’t really notice a huge difference but it’s all about compounding those experiences. There are loads of cool apps out there that can guide you if you are new to it, I usually tend to do my meditation with just music from Brain.fm because it really helps me have a quite mind instead of listening to someone’s voice.


Focusing on the execution of my trading plan rather than results

I used to purely judge my trading based off my returns, which at the time made loads of sense to me since it was based on the returns that I can make money and live off my trading, Plus it’s way cooler to share on social media and it makes you feel good when you’re pumping out decent returns

But that’s really not helping you, instead it is probably negatively affecting you since you will either want to take more trades in order to reach a certain monthly percentage return that you haven’t quite yet reached (and lead you to take lower quality set-ups which leads to more losses which make you want to make the money back – which lead you to take more trades etc…)

This really sucks, and is bloody hard to get out of

I’ve been there, done that and it’s not great… Take my word for it :S

Instead by focusing on the execution of your trading plan you can really look and compare your returns to what the market made available to you over the month, sometimes that may be a small amount of positions other times a lot more. By focusing on the execution of your plan – as in number of high probability trades to valid trades (and having a low number ideally 0 not valid trades) you will take a step forward since you will make sure that your ratio of HP to Valid is high.

Focus on your trading plan execution.

The % return will come according to your plan, not the other way round.

Another benefit of comparing your returns to what your trading plan showed is that you become a lot more aware that other people have a different trading style than you and therefore you definitely can’t or at least shouldn’t compare your returns to theirs. That in turn will reduce the impact your trading returns have on your ego and will make you a happy person.


Anyway, I hope you guys enjoyed this post, let me know if you want more information about any of these or would like to add something. I have made a lot of tweaks so these aren’t the only ones but just a handful I have taken along my journey.

If you enjoyed this article feel free to share it with anyone that will benefit from it!