Choosing The Right Strategy To Trade And Invest
You have been studying the charts, watching YouTube and courses videos, and reading the content from BabyPips for a few weeks or even months now. You're getting lost with so much information out there in the Internet.
You come across many different terms like smart money concept, ICT, Wyckoff, Elliott Wave and supply and demand. You have no idea on what you should be focusing on. You're deciding which method you should be using to trade. Some people tell you to avoid using any indicators, while others tell you to use indicators so that your trades will be mechanical and you will not let emotions get in the way of your trade.
Unable to identify which method to use is detrimental to your trading and investing career.
Technical analysis is the backbone of trading in every asset classes, be it stocks, forex, cryptocurrency and even options. What's worse is that you're using the wrong or inefficient methods to analyze the market. By trying to be involved in the financial market, you aim to grow your wealth and hopefully to retire earlier. Can you imagine how much money you can potentially earn from the financial market? You are able to travel anywhere sitting on the first class seats, and able to buy anything you want without any worries for your fundamental needs like food and shelter.
Right Strategy, Wrong Implementation
Without the right tools, not only will you lose your wealth, but you might also need to push back your retirement age by a few years. Do you want to work for a few more years of 9 - 5, or do you prefer to retire and have the option to not work anymore? I'd definitely prefer the latter.
However, the most important thing you will lose is time. Precious time will be lost by using trading with the wrong strategies. Even worse if you are using the correct strategies wrongly. You might discard it away, thinking that it's not going to be a profitable strategy even when you've already discovered one. If you know of the right strategy, you could be earning and profiting from the financial market so much earlier. Don't forget the compounding power of your profits. The later you start to profit from the market, the longer you will see your capital start to compound.
Finding The Holy Grail
There is actually no "right strategy" in the financial market. Some strategies work better than others in certain market conditions. Take for example Wyckoff methodology is good for identifying change in character and signs of consolidation, accumulation, distribution and reversal on 1 time frame. When using the Wyckoff methodology on a trending market, you are essentially trying to catch a reversal which is relatively riskier compared to just trading with the trend. Of course we are not deep diving into the details on how do we use Wyckoff in trading, but this is an analogy that there are different tools to be used in different market conditions. You have to find out what works for you.
Price Fractality
Price will do what it needs to do. Read it again. Then read it again.
You and me are probably not able to control where the price will move. You need millions of dollars in order to do that, and that is usually the order size of big institutional players like funds and banks. You might be able to influence the price of some meme coins if you are a whale with a few tens of thousands of dollars, but let's not go into that.
Have you ever seen price moved differently on the 1-minute timeframe compared to the 15-minute and 1-hour timeframes? You can be looking at an uptrend on the 1-minute timeframe, but it's consolidating on the 15-minute timeframe and on a downtrend on the 1-hour timeframe. Why? Price moves in different fractal. There are many big institutional players trading at different timeframes. They can be positioning themselves for a huge move on the higher timeframes, or they can be scalping their way to profits on the lower timeframes. I have 2 charts below. Are you able to tell what timeframes are they in? Of course not!
Let's say you have the following data from a strategy that you've backtested using Elliott Waves:
Statistics
Total Trades: 100
Average RR: 2.34R
Win Rate: 37%
Do you know that with this result, you're already on the way to profitability if you trade exactly like how you backtested? For reference, you need a risk to reward ratio of 1:2 and win rate of 33% to have a breakeven strategy.
Finding a 37% win rate and 2.34R strategy is already better than majority of the traders out there.
But Keeley, with an average of 2.34R strategy, when can I get a lambo? I want a strategy with an average of 20R so that I can show off my trades on social media.
First, you need to wake up. Second, you need to stay awake.
There are a lot of posts in the social media where you see people hitting 100RR trades and screenshots of their profits and even MetaTrader 4 and 5. There are people who constantly post all these screenshots to garner your attention. I’m pretty sure they have something to sell you. Be it signals, mentorship, copy trading or account management. What you don’t know is the truth behind many of these screenshots. They can be taken on a demo account using big lots and no risk management. With a demo account, anything is possible. If it’s a real account, you have no idea how many losses they encountered before hitting this homerun trade. Some even go as far as getting a white label and show you that the account is “live”, but in fact it’s a demo account since they own the “broker”.
Yes, you can have an average of 20R strategy, but the higher R you're aiming, your win rate will logically be lower. If this is what you want, then you need to ensure your psychology and risk management is very very strong as you will face plenty of losses before the big win. I know many people can't wait for that 1 winning trade that covers the losses due to fear and doubt during a period of drawdown.
Lifestyle Compatibility
Another important concept of trading is lifestyle compatibility.
Let's say you own a bicycle. A bicycle serves many purposes. It can be a mode of transport, it can be used for exercising, and it can also be used in cycling competitions. If you're travelling to work which will take you 45 minutes by train, will you choose to cycle to your workplace? I'm sure it's a no right? There is a time and place for everything.
Similarly, if you resides in Asia and works at a 9 - 5 day job, does it make sense for you to be backtesting a strategy that involves scalping on the seconds or 1 minute timeframe in the Asian session when you're in office working?
Coming back to the example, if you have a 37% win rate and 2.34R strategy, trade it in the live market. If this is a scalping strategy for the Asian session, you are not able to take all the opportunities that present themselves to you. You take trades half-heartedly. You lose trades. You start to cherry pick your trades. You then conclude that this is actually a losing strategy. You discard this strategy and proceed to find the next "holy grail".
What if you actually stick to your strategy, but instead of trading on the 1-minute timeframe, you apply the strategy onto the 30-minute or even the 1-hour timeframe? Remember that price is fractal and most strategies work in multiple timeframes. Since you're unable to concentrate on trading on the 1-minute timeframe, you might get the same or better results on the higher timeframe. Make sure you backtest your system first!
I was always on the lookout for the "holy grail" because I was making the mistake of not finding the strategy that fits my personality and lifestyle. I had a profitable system with a win rate of 12% with an average risk to reward ratio of 10R. However, it did not fit my personality at all as I need to experience a lot of drawdown before I see profits. This also did not sit well with my psychology, especially when I'm taking prop firm challenges. I would also need to be in front of the chart constantly which was not the freedom that I seek once I achieve financial freedom. So this was not sustainable at all.
Before I had this system, I already have a profitable system with a win rate of 40%, averaging 2.5r per winning trade. Like many of you, I feel that even though this is profitable, it just wasn't enough. It was when I had a mindset shift and speaking to my mentor, I began to stick with my original strategy. From then, I started to see real results and my equity curve has been on a general uptrend since, with some periods of drawdown of course. This has also led me to getting my first payout with FTMO on a $10,000 account, with another payout of close to $1,000 coming in June 2023 from The Funded Trader.
This $200 (post-profit split) is just a 2% profit. Imagine what my profit will be if that was a $100,000 account? Yes, it's all talk until it actually happen. It's just a matter of time when I accumulate more of these accounts to fund my personal account.
Mentorship
A mentor can really help to see the blind spots in your life. In driving lessons, you have a driving instructors guiding and providing you feedbacks on your driving. Sometimes, you discover things that you never knew before. You won't know how to park your vehicle properly, you won't know the technique when you need to hit the emergency break. You might know in theory, but you need someone to guide you with the practical. It cuts so much time and effort on your end with the trial-and-errors which you might not even find success in.
There are a lot of scam artists out there claiming to be a trading mentor without delivering any results. Many aren't able to earn a decent profit from the market. A mentor must be able to objectively look at any strategy and tell you what's not working and what you should stop, not just forcing you to use his own strategy. He must be able to talk to you about his own mistakes and show you solid trading results via 3rd party verification such as Myfxbook or Fxblue, and not through screenshots or excel worksheet. He should walk you through development as a person outside of trading.
Stay consistent. Stay safe. Success is just around the corner.
If you enjoy such content, feel free to click the like button and subscribe for more.
Let me know what are your thoughts and learning points in the comments below so others can learn from you too!
Please let me know what kind of topic you would like to read next :)
Happy weekend!
You come across many different terms like smart money concept, ICT, Wyckoff, Elliott Wave and supply and demand. You have no idea on what you should be focusing on. You're deciding which method you should be using to trade. Some people tell you to avoid using any indicators, while others tell you to use indicators so that your trades will be mechanical and you will not let emotions get in the way of your trade.
Unable to identify which method to use is detrimental to your trading and investing career.
Technical analysis is the backbone of trading in every asset classes, be it stocks, forex, cryptocurrency and even options. What's worse is that you're using the wrong or inefficient methods to analyze the market. By trying to be involved in the financial market, you aim to grow your wealth and hopefully to retire earlier. Can you imagine how much money you can potentially earn from the financial market? You are able to travel anywhere sitting on the first class seats, and able to buy anything you want without any worries for your fundamental needs like food and shelter.
Right Strategy, Wrong Implementation
Without the right tools, not only will you lose your wealth, but you might also need to push back your retirement age by a few years. Do you want to work for a few more years of 9 - 5, or do you prefer to retire and have the option to not work anymore? I'd definitely prefer the latter.
However, the most important thing you will lose is time. Precious time will be lost by using trading with the wrong strategies. Even worse if you are using the correct strategies wrongly. You might discard it away, thinking that it's not going to be a profitable strategy even when you've already discovered one. If you know of the right strategy, you could be earning and profiting from the financial market so much earlier. Don't forget the compounding power of your profits. The later you start to profit from the market, the longer you will see your capital start to compound.
Finding The Holy Grail
There is actually no "right strategy" in the financial market. Some strategies work better than others in certain market conditions. Take for example Wyckoff methodology is good for identifying change in character and signs of consolidation, accumulation, distribution and reversal on 1 time frame. When using the Wyckoff methodology on a trending market, you are essentially trying to catch a reversal which is relatively riskier compared to just trading with the trend. Of course we are not deep diving into the details on how do we use Wyckoff in trading, but this is an analogy that there are different tools to be used in different market conditions. You have to find out what works for you.
Price Fractality
Price will do what it needs to do. Read it again. Then read it again.
You and me are probably not able to control where the price will move. You need millions of dollars in order to do that, and that is usually the order size of big institutional players like funds and banks. You might be able to influence the price of some meme coins if you are a whale with a few tens of thousands of dollars, but let's not go into that.
Have you ever seen price moved differently on the 1-minute timeframe compared to the 15-minute and 1-hour timeframes? You can be looking at an uptrend on the 1-minute timeframe, but it's consolidating on the 15-minute timeframe and on a downtrend on the 1-hour timeframe. Why? Price moves in different fractal. There are many big institutional players trading at different timeframes. They can be positioning themselves for a huge move on the higher timeframes, or they can be scalping their way to profits on the lower timeframes. I have 2 charts below. Are you able to tell what timeframes are they in? Of course not!
Let's say you have the following data from a strategy that you've backtested using Elliott Waves:
Statistics
Total Trades: 100
Average RR: 2.34R
Win Rate: 37%
Do you know that with this result, you're already on the way to profitability if you trade exactly like how you backtested? For reference, you need a risk to reward ratio of 1:2 and win rate of 33% to have a breakeven strategy.
Finding a 37% win rate and 2.34R strategy is already better than majority of the traders out there.
But Keeley, with an average of 2.34R strategy, when can I get a lambo? I want a strategy with an average of 20R so that I can show off my trades on social media.
First, you need to wake up. Second, you need to stay awake.
There are a lot of posts in the social media where you see people hitting 100RR trades and screenshots of their profits and even MetaTrader 4 and 5. There are people who constantly post all these screenshots to garner your attention. I’m pretty sure they have something to sell you. Be it signals, mentorship, copy trading or account management. What you don’t know is the truth behind many of these screenshots. They can be taken on a demo account using big lots and no risk management. With a demo account, anything is possible. If it’s a real account, you have no idea how many losses they encountered before hitting this homerun trade. Some even go as far as getting a white label and show you that the account is “live”, but in fact it’s a demo account since they own the “broker”.
Yes, you can have an average of 20R strategy, but the higher R you're aiming, your win rate will logically be lower. If this is what you want, then you need to ensure your psychology and risk management is very very strong as you will face plenty of losses before the big win. I know many people can't wait for that 1 winning trade that covers the losses due to fear and doubt during a period of drawdown.
Lifestyle Compatibility
Another important concept of trading is lifestyle compatibility.
Let's say you own a bicycle. A bicycle serves many purposes. It can be a mode of transport, it can be used for exercising, and it can also be used in cycling competitions. If you're travelling to work which will take you 45 minutes by train, will you choose to cycle to your workplace? I'm sure it's a no right? There is a time and place for everything.
Similarly, if you resides in Asia and works at a 9 - 5 day job, does it make sense for you to be backtesting a strategy that involves scalping on the seconds or 1 minute timeframe in the Asian session when you're in office working?
Coming back to the example, if you have a 37% win rate and 2.34R strategy, trade it in the live market. If this is a scalping strategy for the Asian session, you are not able to take all the opportunities that present themselves to you. You take trades half-heartedly. You lose trades. You start to cherry pick your trades. You then conclude that this is actually a losing strategy. You discard this strategy and proceed to find the next "holy grail".
What if you actually stick to your strategy, but instead of trading on the 1-minute timeframe, you apply the strategy onto the 30-minute or even the 1-hour timeframe? Remember that price is fractal and most strategies work in multiple timeframes. Since you're unable to concentrate on trading on the 1-minute timeframe, you might get the same or better results on the higher timeframe. Make sure you backtest your system first!
I was always on the lookout for the "holy grail" because I was making the mistake of not finding the strategy that fits my personality and lifestyle. I had a profitable system with a win rate of 12% with an average risk to reward ratio of 10R. However, it did not fit my personality at all as I need to experience a lot of drawdown before I see profits. This also did not sit well with my psychology, especially when I'm taking prop firm challenges. I would also need to be in front of the chart constantly which was not the freedom that I seek once I achieve financial freedom. So this was not sustainable at all.
Before I had this system, I already have a profitable system with a win rate of 40%, averaging 2.5r per winning trade. Like many of you, I feel that even though this is profitable, it just wasn't enough. It was when I had a mindset shift and speaking to my mentor, I began to stick with my original strategy. From then, I started to see real results and my equity curve has been on a general uptrend since, with some periods of drawdown of course. This has also led me to getting my first payout with FTMO on a $10,000 account, with another payout of close to $1,000 coming in June 2023 from The Funded Trader.
This $200 (post-profit split) is just a 2% profit. Imagine what my profit will be if that was a $100,000 account? Yes, it's all talk until it actually happen. It's just a matter of time when I accumulate more of these accounts to fund my personal account.
Mentorship
A mentor can really help to see the blind spots in your life. In driving lessons, you have a driving instructors guiding and providing you feedbacks on your driving. Sometimes, you discover things that you never knew before. You won't know how to park your vehicle properly, you won't know the technique when you need to hit the emergency break. You might know in theory, but you need someone to guide you with the practical. It cuts so much time and effort on your end with the trial-and-errors which you might not even find success in.
There are a lot of scam artists out there claiming to be a trading mentor without delivering any results. Many aren't able to earn a decent profit from the market. A mentor must be able to objectively look at any strategy and tell you what's not working and what you should stop, not just forcing you to use his own strategy. He must be able to talk to you about his own mistakes and show you solid trading results via 3rd party verification such as Myfxbook or Fxblue, and not through screenshots or excel worksheet. He should walk you through development as a person outside of trading.
Stay consistent. Stay safe. Success is just around the corner.
If you enjoy such content, feel free to click the like button and subscribe for more.
Let me know what are your thoughts and learning points in the comments below so others can learn from you too!
Please let me know what kind of topic you would like to read next :)
Happy weekend!
Prop Firm Funded Trader
Find out more about me here: linktr.ee/kt_fx
Find out more about me here: linktr.ee/kt_fx
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