One of the most important things to have as a trader is a trading plan and system. Without it, you are going to fail. Period. The simpler the better.
When I say trading plan or system, this encompasses a few primary things. This is a great way to ensure your strategy has merit (and math) behind it. This is by no means the end-all list and you can add a TON more, but this is a great starting point.
Key Factors Of A Good Strategy:
- Fully detailed and cataloged setup list
- Defined 1R value (typically a % of the account)
- Probability of success that has historical merit for a minimum of one month (preferably 3+)
- R:R for each setup
- Positive strategy expectancy (R:R compared to probability are mathematically sound and positive)
Almost always the case for a lack of faith in your system or setup is a lack of understanding it fully enough to trust it. There isn’t an easy solution for this once you have the above locked in because the next step is down to screen time. The more the better. If you are able to lock in a few hours each day, awesome. This may seem obvious but the reason why screen time is so important may not be as obvious as you think.
Markets change on a near daily basis lately. A trending market can explode in to a huge blow-out trend and then, just as fast as it all started, it dies to a total halt. Seeing these moves first hand over and over again engrains them in your memory. You would be amazed at how similar each move is when you begin to understand the orders that move them. The caveat is that you don’t understand the orders that move them without the screen time.
That is exactly where traders fall flat. They approach a system or strategy while it’s “Hot” and ripping the market up. Obviously you want to be a part of that too right!? You start out trading it for a few weeks on SIM to get the general idea and then, out of pure excitement, you move to live and get obliterated. Feeling totally smashed and beaten, traders give up here.
A few things that happened obviously:
- Did not trade the strategy long enough to fully understand how it worked in different market environments
- Move far too quickly to live out of excitement without proper training and screen time
- The lack of knowledge of the strategy really sets in when you go live. Now the emotions hit and you realize how little you really know about the strategy
Just like the markets we base them off of, our strategy will have an ebb and flow to them as well. Sometimes they will be very “Hot” and just be ripping the market up while other times it’s cooled off. If you don’t experience that ebb and flow to see the strategy for what it is, you can’t fully understand how to use it. If you are going to pick up a new strategy, do yourself a favor and spend enough time with it to understand it and be realistic. Don’t expect to go from blowing up accounts to making millions in 3 weeks.
Stay safe out there, keep those stops in play, and let the winners run!