5 Proven Steps To Doing Really Well In Trading

Have you ever wondered what it takes to do really well in trading or what necessary steps you need to do? I keep receiving these questions quite often. So let me give you my five proven steps. I've been doing really well with them in my own trading, so I believe they can help you too.

Step #1: Questions 
You may or may not like it, but successful trading is about the ability to come up with new, fresh ideas. Fortunately, it's not as difficult as it sounds. All you need to do is to keep asking this question: "What happens if... ?" What happens if I buy when the RSI indicator is overbought instead of oversold? What happens if I start moving my stop-loss according to my moving average? By asking the "What happens if... ?" question constantly, you start to move forward really fast and I can guarantee you some of your ideas will be sooner or later really big winners.

Step #2: Robustness testing 
Most strategies are crap. That's the fact. But how do you know which ones aren't? You can always find it out through extensive robustness testing. What does it mean? In my case it mainly means three things: A) A good strategy can easily adjust to changing market conditions. An extensive walk-forward testing is needed at this stage. B) A good strategy performs reasonably well in other markets. C) A good strategy has been developed only on a part of all your historical data and performs well on the rest. To be very honest with you, about 95% of all my strategies never pass my robustness testing criteria, but when they do, it's time to move to the next step.

Step #3: Portfolio 
One strategy will help you learn, but a portfolio of strategies will help you grow. You don't need to have a big portfolio at the beginning, but even three strategies are much better than just a single one. Remember, if you want a smooth equity and a steady income from your trading as soon as possible, the only way is through diversification and portfolio. Very few people are aware of this and even fewer spend significant time by modeling different portfolios. I personally spend a lot of time trying to find out the best way to combine my strategies together to make a really good portfolio.

Step #4: Position sizing 
Let me ask you a question: Do you want to make it big or do you want to stay small? Because if you want to make it really big, then you need to start seriously thinking about position sizing. This topic can be pretty complex, but it can be also extremely rewarding. So, where do you start? I highly suggest reading Van Tharp's book "The Definitive Guide to Position Sizing." You will learn a lot. Personally, it has moved my trading to a whole new level.

Step #5: Persistence 
Listen, it can be done. It doesn't matter what education you have, how old you are, or even how confident you feel at this moment. I've seen many people succeed. I've seen traders making it from zero to quite a nice living, and that's why I believe that you can do it too. Yes, it does take some time, effort and learning, but once you're finally there, it's all worth it. So, stay persistent and mainly never give up, and that's really all.

Happy Trading!

Article Source: Here

Automated Breakout Strategies for Small Accounts

People often ask me if breakout strategies can be used for small accounts. And the simple answer is, yes, they can. Today, let's have a closer look at this topic and how it can be done.

First of all, it is important to explain one crucial context. If you would like to create breakout strategies for small accounts, you need to work with a low risk. But everything costs something. A low risk will practically always lead to some compromise - mostly you will make less and the stability of your equity will be lower. But, you will experience longer periods when your account will go mostly sideways. Unfortunately, in trading there aren't black and white solutions, and each advantage is redeemed by certain disadvantage. Once you decide to build strategies for small accounts, you have got to ask yourself: What is more important to you? Is it a small risk per trade or a drawdown that is the smallest it can possibly be? (And don't say both, as these are contradictory. Why? I will explain that in examples.)

Drawdown vs. risk per trade

There is a general rule in breakout strategies - the bigger stop-loss, the smaller the drawdowns. Maybe it sounds inconsistent, but the logic behind is pretty clear: Breakout strategies have a tendency to go through substantial corrections throughout a day and a bigger stop-loss will cope with this much better. You risk less with small stop-loss, but you will be out with loss more often. A bigger stop-loss will help you to stay in during corrections. So, even though each loss will be a bit more painful, the overall drawdown can be smaller and the profit and success rate much higher.

Let's have a look at one of my simple breakout systems which can be used to trade on numerous markets even with a small stop-loss.

In this system, the smallest acceptable stop-loss value is 100 USD (market EMD, 30-minute timeframe). It is possible to use the same stop-loss in ES or TF markets with similar results. Such stop-loss is indeed very low for automated trading strategy - quite often even smaller than in similar markets during discretionary trading. With a stop-loss like this, it is possible to trade a small account and losing trades won't be considerably unbearable.

How would equity and maximum drawdown look like with this scenario? The system is generating stable profits, but equity has its weak periods. The average profit is 3000 USD per annum and overall drawdown is 2380 USD. It means it is possible to trade with a very small stop loss. However the question is: Wouldn't it be worth to increase the risk a bit? I understand that for someone with a small account a stop-loss higher than 100 USD could be unacceptable, but let's see if we wouldn't actually gain more than if we used a very small 100 USD stop-loss.

And now the same system with a stop-loss of 300 USD. It sounds like a big jump to increase stop-loss to 300% of the original amount, but let's have a look at what we have gained. The average profit per annum increased to approx. 4200 USD (a 40% improvement), the stability of equity is considerably better, and drawdown decreased to 1930 USD (almost a 20% improvement).

So, the first rule when searching for ATS breakout strategies is: Even if you are working with a small account, search for a strategy with a slightly bigger stop-loss than you would normally use in discretionary trading, or a bit bigger than you would feel is acceptable.

In this case you have to perceive stop-loss only as a necessary protection. Even though individual losses will be more painful to some extent, your results will improve and profit distribution will be more stable.

How to capitalize

Once we have a system with relatively small risk (300 USD is still a very small stop-loss; I personally also work with stop-losses of 2000 USD per contract) and a small drawdown (drawdowns of under 2000 USD for an automated breakout strategy can be regarded as small), for such strategy we can capitalize with a relatively small account. The technique is simple:

1) Conduct a Monte Carlo analysis of the system (e.g. in Market System Analyzer 

 This drawdown will be mostly 25% higher than your original equity - i.e. in the above system we would have to anticipate a drawdown of 2400 USD instead of 1930 USD.

2) Think of what your maximum accepted drawdown is in percentage and capitalize in accordance to the Monte Carlo drawdown that needs to correspond with this percentage. If you decide that you are able to accept a 50% drawdown on your account, then your capitalization will look like this: 2 x 2400 USD = 4800 USD. If you decide you can accept a maximum drawdown of one third of your account, then your capitalization will look like this: 3 x 2400 USD = 7200 USD.

With a bit of patience and research you can come up with strategies that will be possible to trade under certain circumstances with very small accounts - i.e. 5000-10000 USD.

Once you have a few strategies like this, it is possible to work with small portfolios (2-3 systems). In such case you need to conduct a Monte Carlo analysis on your portfolio as a whole (program MSA is great for that) and capitalize in accordance to the Monte Carlo drawdown of the portfolio.

How to search for strategies for small accounts

So, once more... The good news is that to find a good, quality breakout strategy for small accounts is possible. The bad news is that it will take much more patience and you will always have to compromise slightly.

You have to ask yourself what is the amount you are willing to accept (such amount needs to be reasonable, e.g. 100 USD is a bit extreme, but 300-500 USD seems reasonable) and during the development of the breakout strategy, you will have to implement this as a fixed amount from the very beginning of the whole process, i.e. in search and development of the breakout strategy.

Generally speaking, breakout strategies with small stop-loss are better to find on markets like YM and ES, especially on 15 minutes and 30 minutes timeframes. However, it takes much more patience - to find a strategy for small-stop loss is considerably more difficult (but not impossible). From my experience, sometimes it is worth it to take a tested and proven strategy and to try it on other markets with different stop-loss values. This way I have found, for instance, low values of stop-loss for the BOSS system (but for timeframes higher than 15 minutes). Generally, only one in approximately six of my breakout strategies is usable with small stop-loss. This only confirms the difficulty to search for this kind of strategy - but with an account of around 8000 - 10000 USD, I can imagine to have a portfolio with three such strategies and have a decent base for further growth.

Happy Trading!

Article Source: Here

4 Useful Tips for First Time Forex Trading

Forex traders that are just starting out often find the process to be quite tough. Many have unrealistic expectations and hope to get rich in a relatively short period of time. But this is rarely the case with most non-educated traders losing their capital within the first three months of trading. For this reason, it makes sense to learn the basics and only start trading with real money when there is a fundamental understanding of the practices involved in trading.

Here are a few of the best trading tips for beginners:

Buy software

The first time trader will require a decent software program to make it possible to complete the trading activity. There is plenty of competition in the Forex industry, so most of the software options are free. It is worth researching the market and going with the highly rated package that is user-friendly and has a wide range of features.

Learn fundamental and technical analysis

The ability to analyze the basic and technical aspect of Forex trading is certain to benefit the long-term goal of growing the capital. Learning to read the daily to monthly charts can help with all types of trading activity. It is worth learning about things like resistance, support and trend lines, as well as the indicators.

Also, it helps to keep in touch with worldwide news to see to how a country's financial policies and events can have an influence on the trading market.

Use the different markets

When first starting out with Forex, many first time traders focus entirely on currency pairs because of the tight spreads and daily volatility. But, there are several other markets that are worth considering. Popular options include indices, energy futures, commodities, stocks and exotic FX pairs. It is practical to look at trading in several markets to avoid issues with over-trading and also to diversify the investment portfolio.

Write things down

The new trader is certain to benefit when able to develop a mindset similar to a small business owner. A successful business is certain to create the detailed business plan and conduct regular auditing and monitoring. Keeping a record of the day-to-day trading activity can help in many ways. Use a journal to record mistakes and achievements, reasons to close or open a trade, and funds being traded.

Keep referring back to the journal to analyze the good and bad trades to show where you can improve and extract more value. Also, the details of the good trades will help to motivate and boost your trading confidence.

Article Source: Here