Forex Training: Building A Rules Based Trading Strategy

hey traders Akhil Stokes here chief currency analyst and trading coach over at trade in power calm and thank you once again for joining me for another weekly video originally I wanted to talk about the RSI and how to use that with price action and structure based trading, but due to a few recent events in my live trading room this week I thought it’d be more important that I focus on the topic of trading strategies and do you have one now before I give you my opinion on that topic, I want to show you some footage from Wednesday’s war room meeting that Jason Stapleton did with our syndicate members, so it’s about two minutes long take a look at it and I’ll be right back at the at the end that, if you want to be successful here’s what you have to do you have to find a trading plan that is that you’ve tested that you verified that you know will make you money over time or at least historically has done, so and that’s the only measuring stick that we have and once you have found that thing to be able to come in every single day and do that over and over and over again and that is the surest and fastest way for you to go from being unprofitable to being profitable and what tends to happen is these guys come in after feeling beaten down and not being very successful and they watch a few of the videos online they say well this guy really seems to know what he’s talking about he really seems to get me he seems to understand what I’m going through and you want to know why they feel that way, because I do know what you’re going through, because I have already been there and I have already done all of the stupid things that you are doing right now and I’ve also been working with traders long enough for years that I have heard it all I have seen it all and everybody wants to pretend that they are different that the issues they’re dealing with are different or that you know their psychology is different or their issue is just different it’s not you are all dealing with basically the same six eight problems and to give you an idea of that I got a I tell you guys that one of the books I suggest that you read there there are two books that i really suggest everybody read one of them is market wizards, because it gives you a feel for the fact that it doesn’t matter what your style of trading is it doesn’t matter who you are it doesn’t matter where you come from you can be trend counter trend long term short term you can trade systems trade structure doesn’t matter you can make a ton of money trading using any of those strategies a lot of people tell you well counter trend systems are stupid you should only trade with the trend or you should never trade low timeframes or high timeframes market Wizards puts all of that to bed it is nothing, but a list of stories and interviews of successful traders trading everything that you can possibly imagine and what you should walk away from that book understanding is that regardless of what style you trade you can trade based off astrology and be successful, because they’re guys who do it, but whatever strategy you employ you have to have a system every one of those guys in that book will talk to you about the importance of having the system and being disciplined about what you follow, so, if you haven’t gotten the gist of it by now the point that we’re trying to get across is that having a trading strategy is important doesn’t really matter what type of trading strategy you have and we’ll get into that a little bit later, but you need a plan of action, if you don’t have one it’s it’s no different than gambling it’s no different from going to casino and just you know throwing your money on a table and crossing your fingers saying okay I hope it works I hope it works you know another analogy would be trying to build a house without a blueprint sure you can get some of the work done, but all it takes is that one crucial mistake in boom the whole house comes down and for your sake it would be a trading account I actually had a trader this week post on one of my youtube videos talking about how they blew an account on the euro dollar and we want to avoid that at all cost, so having a trading plan is important and this topic came up in the live room when a trader asked me hey Akhil what do you think about this type of to this level and of course as an educator I always answer that question not by giving you a yes or no answer, because it really shouldn’t matter what I think what matters is what’s in your plan, so I always ask the trader okay well explain to me why did you enter this position now you know I do this a lot Charles does a lot of our trader assessment what we’re looking for is not really to tell you whether your trading strategy is right or wrong I don’t really care unless I’ve personally back tested your strategy and on the same pairs on the same timeframe using the same exact rules and my numbers came out negative Who am I to tell you that you’re trading the wrong way you know that’s not my place my job as an educator is really to make sure that you have a plan make sure that you have solid rules for why you’re trading, so whenever I ask a trader to explain to me hey okay why did you enter this area I’m looking for a sharp quick response hey okay I got involved in this area, because RSI was overbought lower low lower closed entry technique stops went here, because it’s 1 times 80 our target went there, because its previous previous structures support no that’s the type of answer where it’s like okay well it’s it’s it’s apparent you have a plan you know why you took the trade you just have to do that consistently and, I want to assume that your strategy has a positive expectancy the answers that kind of raise a red flag for me are the ones where it’s like well I entered there, because it looked good or whenever you hear terms like well maybe usually you know those are all red flags, so I’ll ask the trader say well what made you enter there it looked good what was your entry technique price action what I doesn’t really tell me much well white wire stops at that specific level and they don’t really have an answer and we try to nip that in the butt as quick as possible and we tell the traders hey the first thing you need to do is stop the bleeding you should stop trading now, because it’s obvious it’s obvious you don’t have a plan for why you’re trading and you’re only waiting for disaster to happen yes you could get lucky a few times I mean after all the markets either going to go up or down right it’s a 50/50 chance yes you’re going to get lucky sometimes, but eventually it’s going to catch up to you and that’s one of things that separates the professional traders from the rest of the traders you know I remember when I was on a demo account I won all the time I won all the time I have hot months you know all the time on a demo account as soon as I started trading live I struggled to put that consistency together and the truth will be told you know over time in this industry you can only fake it for, so long eventually, if you don’t have a consistent plan of action with a consistent execution you know you’re going to be called out by the market and usually that comes in the form of massive losses, so we want to avoid that, so I don’t know where I’m doing this off the top of the head I don’t know where I’m going with that, but the point is you’ve got what it doesn’t matter how you’re trading you want to have a plan and I know Jason brought up a book in the clip I just showed you about market Wizards that’s a perfect book to read for newer traders or any traders, because again it emphasizes that you don’t need a specific plan there’s no one way to make money in the forex market or in trading in general despite what a certain viewer of my youtube videos says or thinks and you know exactly who I’m talking to you know that guy that leaves those negative comments and has been getting into it a few of my followers who thinks there’s only one way to trade I recommend you read market Wizards what Jack Swagger does is he takes the best traders and prove you know he proves that all of these top traders they all have different techniques they all have different strategies they all have different plans, but they’re all successful and they’re all successful, because of core principles this isn’t a magic system like you think it’s not a magic system it’s about having that plan it’s about having discipline to execute that plan and the ability to do that over and over and over again consistently, so I recommend that you read this book especially since you’re going around saying that your plan is the only plan that works and everyone else should be you know relegated to the hell’s of trading, because they don’t trade the way you do sorry about that little personal beef I’ve had usually I keep that inside I’m little fired up today, but anyway let’s go over to the charts for a second and let’s let’s look at an example of a plan that you can now it’s just an example I’m not saying go out and trade this guy’s, but it’s going to give you an example of of using that if-then thought process to really create consistency in your trading all right, so we’re over here on a blank chart and again, I want to give you guys just an example of what a plan looks like I’m not saying that this is a technique or strategy that you should go out and trade I just want to give an example of how to use that if-then thought process let’s say you’re a trend continuation traders meaning that you’re a trader that looks to hop on a trend here’s something that you can do, so the market we know, if markets in a downtrend let’s do an uptrend do a bullish trend we’re looking at Movement like this right swing low to swing high outside return swing low to swing high outside return here would be an example of a trader that doesn’t have a plan okay a kill I entered right here, so I tell the trader why did you enter at this moment, because it was a pullback well what the whole thing was a pullback what told you to enter at this specific price level I felt like that was the turning point well what on the price chart you know allows you to see that that was a turning point was it was the RSI oversold with her a double bottom was there previous structure a certain candlestick formation uh you know it just it just it just looked good at that level and again that’s an example of a trader that doesn’t really have consistency in their trading and you know one time they’re going to take the trade right here the next time they’re going to take it here the next time they’re going to take it here and there’s no real consistency at where they’re executing the trade at there’s no plan they just kind of go off of really where they feel like getting involved in and usually that’s driven off of two things greed or fear they’re scared that the markets going to push down and they’re going to miss it or they’re greedy and they’re going to wait to try and get the best entry technique when they are the best entry spot where they should have got involved in a different place what you want to do is you want to be consistent in your analysis consistent in your execution, because that’s the only way in the long run to tell, if what you’re doing is actually making you a profit you know many traders are out there trading something that they think works and when they go back it’s funny we have we have a bunch of traitors that do this they come to the 12-week transformation course we have a heavy lesson on back testing right and they’ll come to the course as a hey Akhil I trade this way and, then once they learn about back testing I always encourage the traders yeah hey you don’t betrayed the way I trade, but you got to develop it like a business and a lot of will come through the course and they’ll come back and say okay well guess what a kill remember that strategy I told you about I was trading earlier I’m like yeah okay well I went back and back tested it and I saw that it doesn’t actually make money, so I’m not I wasn’t a bad trader before I was just trading a strategy that wasn’t profitable and you’d be surprised at how many times that happens you’d be surprised at how many of you guys out there were trading things that aren’t consistently known to make money for example ABCD patterns by themselves I used to think that every, if I just traded every ABCD pattern I would make a good living later found out that they’re not even profitable by themselves you got to add filters to it, but anyway an example of a tree or dad has a plan that has a strategy they would say something like this alright, so there a trend continuation trader they’re looking to hop on the pullback and ride this up to the next level, so an example of a plan would be hey John how do you you’re a continuation trader you’re waiting for the pullback and you’re looking for the extension correct yes Akhil well where do you enter well I draw my Fibonacci retracement from the previous swing load to the previous swing high and I wait for the six one eight to be hit that’s going to be my level four entry okay John do you enter right at the six one eight or can it be before it well Akhil it has to at least hit the six one eight, but once it hits the six one eight the trade is valid anywhere between the six one eight retracement and the lowest point of our previous outside return and now we have a zone right here okay John well after let’s say this, if price action hits the six one eight how do you know when to enter well Akhil, if price action hits the six one eight retracement, then I wait for the RSI to go over Seoul okay next well, if the RSI goes oversold, then I use a higher high higher closed entry technique or I wait for a higher high higher close candlestick formation all right, if I get a higher high higher close candlestick formation, then I enter next bar market, so that looking at something like this the market pushes down let’s say we get to here and again just these are just examples guys let’s get to here and, then boom market gives you a higher high higher close, so John’s saying, if price action gives me a higher high higher close, then I enter next bar market all right John where do stops go well stops go 180 are under the lowest point of our swing, so 180 are below this low point right here where two targets go John targets go at a retest of previous structure highs and John’s set himself up with a trade that looks like this right boom he’s got perfect rules there’s no hesitation there’s no I usually enter here, but sometimes there, but I might enter there no John has specific rules on where he’s entering what he needs to enter where his stops go where targets go and in typically when we’re doing these trader assessments you know we’ll even check him up okay well John what, if we get a higher high higher close that comes all the way up here and it sucks up a lot of your potential reward and increases your potential risk do you still take the trade well Akhil, if if I do not get at least a one to one risk reward ratio to target ones, then I cannot take the trade or, if I do not, if I get less than a one to one risk reward, then I wait for an alternate reason for entry say a double bottom or something like that, so again a simple strategy, but the point is I hope you guys see that if, then fella process there are rules and this is how we want to develop our traders, because this is the only way you’re going to be consistent, if you don’t know why you’re entering the trade, if you don’t know where you’re in in trade, if you don’t know where stops are going and where targets are going what are you doing it’s going to be very hard to be a consistently profitable trader yes you can get lucky for a while luck always ends always runs out and in the worst scenarios you get lucky just enough to go live and increase that position size and it low it runs out as soon as you’re trading that massive you know – standard lot position sighs and you catch that big loser and we don’t want to see that happen to you know we don’t want you guys blowing accounts, so I don’t know how this video is going to turn out it’s kind of off the top of my head again it wasn’t planned, but hopefully I got the point across that having a plan is important guys it doesn’t matter what your plan is, but it needs to be you need to have it needs to be ruled based you need to have a set idea of where entries stops and targets are going to go on each trade and it needs to be testable verifiable and repeatable and what that means is that it should be something written that you can give it to anyone and they should be able to test it they should be able to verify the results through back testing and that they can repeat it real time in the markets and that’s what that’s what a good trading strategy needs, so probably not my best video let me know what you guys think again it’s a little rushed, but I don’t know it’s why I’m tired no sleep last night the little guy just started walking and, then he’s got a cold and got about two hours, so anyway hope this was worthwhile I’ll see you guys next week Oh before I leave I’m going to be doing I’m going to be doing a google hangout next Friday during our non-farm payroll reports it’s something I do at least once a month, so, if you’re not subscribed make sure you subscribe to the YouTube channel that way you get notified when that Google hangout is I know it’s going to be next Friday I believe that’s November 7th I do not know the time yet, but once I post the event is it will tell you the time, so make sure you subscribe, if you’re not already, so you know exactly when that event is coming up, so I don’t forget about that until next time guys playing your trade trades plan have a great weekend that is critical and the other one that I suggest you read is Mike bellifiore book a one good trade Mike Bell, if yours from SMB capital it is one of the largest proprietary trading firms in the world and one of our clients recently went to work for them or went to Troy winter I went to train with him I don’t know, if he actually got on with them or not, but he was talking with Mike and he said to Mike was teaching and one of their students said hey I heard about your book from Jason and, so I that how I came to know about you guys and Mike sent me an email and he said hey I really appreciate you you I heard you you’ve been recommended you’ve recommended my book to your students and I really appreciate that he said let me know the next time you’re in New York and and we’ll meet up and I sent him a note back and I said hey the book is excellent I love the book I have absolutely no problem recommending it and and next time I’m in New York I’ll look you up and and we’ll go you know grab some coffee or something and the important thing to note there is it reinforces Bill, if yours book reinforces my idea and the principle that I teach you guys that what is really important is following a set of rules and what Mike teaches it doesn’t matter whether you’re doing it at home in your basement or whether you’re on a trading floor with Mike it doesn’t matter you have to maintain that discipline you have to have a system in place, and, if you don’t know what you’re doing I mean think about this the guys who come on – Mike’s floor these guys have already been interviewed and re interviewed and interviewed a third time and they’ve been put on the desk for a trial and only after they feel like they’re the right might the right person at the right time for the right mix on the desk do they end up getting a spot on the desk and once they get on that desk 50% of them wash out and when you hear about the regiment that they go through when you read that book and you hear what mike requires from them you got to be in the office at 6 o’clock there’s a warning war room just like what we do here where we talk about the markets and and what’s coming up and what to watch for and everybody kind of gives their ideas, then they go out on the trade floor and they all trade together and they all have headsets where they talk to each other and Mike and the other senior traders are talking to the junior traders making sure that they’re doing what they need to be doing making sure that they know what they’re doing constantly over their shoulder and, then after the day is done after 3 o’clock hits and the trading day is done they’re not done, if you’re a trader on that desk you’re going to spend the next several hours going back through every single trade that you took analyzing what you did right what you did wrong and, then you’re going to start your research for tomorrow, because when you show back up the next day you better have ideas about what it is that you’re looking at to trade that day now it’s a different form of trading it’s a different strategy than we use here that we teach here, but the principles are the same now I want you to consider for a moment the amount of work that those guys put in on that desk the amount of training that they receive from the guys at SMB, because SMB is putting up their own money for this trader they have a vested interest in making sure that guy does well and fifty percent of them still wash out think about that for a minute and, then ask yourself a simple question what am i doing right now to put myself in a position where I can compete with those guys the guys who survive the guys who every single day are coming out and fighting for those guys it’s not about losing the ten thousand dollars of the twenty thousand dollars it’s in their account for those guys it’s am I out of a job or not you’ve got to have that mind, so you’ve got to be prepared to make that kind of commitment otherwise you’re better off giving your money to somebody else you certainly don’t belong here, because that’s what I’m going to demand of you, because, if you don’t do that the odds of you being successful here anywhere in trading ours are virtually zero you have to understand how do you test how do you how do you forward test how do you write a trading plan how do you deal with the discipline issues all of that stuff and at every stage of the game here at trade empowered we are we are actively trying to push you towards that end, because that is what will make you successful yes understand that I mean is am I getting through I really hope I am and, then once you get to that point where you feel like yeah man I’ve learned a massive amount of information here and I’m really interested in in doing one of the going one of these routes do, I want to go to a prop firm do, I want to go to SMB and try and get on a desk there do, I want to go to another proprietary trading firm do, I want to go and start my own fund do, I want to try and raise capital those are different skill sets now you start going into raising capital well now you’re becoming largely a Salesman whether you believe it or not, because your main mission in addition to making money in your fund is going to be convincing other people to give you money and that’s going to become a main part of what you do is soliciting capital or do you want to maybe use the knowledge and expertise that you have to teach others to do what we’re doing here do you want to do the same thing that you’re doing right now just sharing it with others.

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