forex trading plan

Do I Have an Edge?

Name me a successful business that has started selling a product without ensuring that there is a demand for it. Anybody? Somebody? Exactly! Then why do so many traders begin placing live orders without having the slightest idea if what they’re doing actually works? This advice comes from personal experience. Never put your hard earned money at risk unless you’re certain that your trading has a positive expectancy. A positive expectancy means that if your strategy has an edge and if traded consistently overtime, it will produce profit. In order to determine the expectancy of your strategy it’s imperative that you test it by running it through both historical and real time data. This process is called  back testing.  During this process your fancy suit and tie is traded in for a lab coat and glasses as you’ll look to embark on a journey of experimentation and data collection.  Correctly testing your strategy means looking at hundreds if not thousands of historical trading opportunities and taking detailed notes on the performance.  This is often a long and grueling process as lots of data must be collected, analyzed, adjusted and often retested multiple times. Each strategy is different, but aside from overall profitability and win percentage (which is what most traders worry about), it’s important to track other forms of data such as maximum favorable and maximum adverse excursion (optimal placement for tops and targets) for example. Testing a strategy isn’t just about discovering whether it works or not, it’s also about maximizing its performance.  More importantly, it provides the trader with a 100% belief in their system, which is the most priceless asset a trader can have.

Executing Your Strategy

As a business, having an amazing product is only half the battle because no matter how great it is, it’s worthless if you can’t efficiently produce it.  A trading strategy is the same. Having a strategy that produces a consistent profit is a good start, but being able to execute it day in and day out is how profits are earned. The execution phase of trading is often the hardest point to overcome as when it comes time to pull the trigger the heart starts beating fast, the palms start sweating, the hands begin to shake and fear and anxiety begin to take over the body and mind. One tactic to overcoming this feeling is to  put yourself in a comfortable situation by setting up a routine. Have you ever seen a basketball player that dribbles the ball twice, spins it and taps his leg before shooting a foul shot? Or a baseball player who steps out the batter’s box, re-straps his batting gloves and taps his bat on top of the plate three times before taking his stance? These are both examples of rituals that professional athletes have created in order to put themselves in a comfort zone while being involved in high pressure situations. As traders, we can create a similar comfort zone by setting up a consistent routine and essentially creating a work schedule for ourselves.  I’ve personally found that my performance is much improved when I execute my daily routine and that I make many more mistakes when I don’t.  Here’s what my trading day looks like.

My Trading Ritual

5:30am “The Double Wake Up”

What I’ve noticed is that although my body is able to hop right out of bed, my mind isn’t so quick to follow. In the past I found myself making a handful of trading mistakes simply by not being fully awake and 100% focused. Therefore, after I hop out of bed and check any open positions for trade management purposes, I spend the first half hour of my day checking messages on social media, reading articles and watching some type of trading/economic based content. 

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