trading plan – Bullish on Coffee

September 9, 2019September 9, 2019

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!

August 24, 2019August 25, 2019

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

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

August 19, 2019August 19, 2019

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

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