7 Steps to Building Your Own Trading Strategy
"So, Brad, I've watched the videos, now what?"
A lot of students watch the videos or watch Jerremy and I place trades live in the webinars, but wonder how to overcome the anxiety of placing a trade with their money. Many students understand the concepts of Dow Theory very well, but are unable to translate that to placing and managing their own trades. So this article will outline 7 steps to help traders develop their own strategy, test the strategy and gain confidence that their strategy is sound before placing real money trades.
1) Study the free videos at http://reallifetrading.com/free-products/beginner-trading and http://reallifetrading.com/free-products/intermediate-trading
2) Create your trading plan which is described in the videos
3) Boost your trading plan by writing out the following:
a. What entry are you looking for? (a big white candle off of support, a double top confirmation candle, retest candle, etc - pick one)
b. Where will you put your stop order? (Beyond the previous swing, previous day's high or low, in the gap, etc)
c. How will you calculate your position size? (1R, % of your portfolio allocated to this strategy, etc)
d. Where will you put your target? (2R, the next support or resistance as long as it is a 2:1 reward risk ratio or better, etc)
e. What is the criteria for you to adjust your stop order? (Previous day's low or high, follow the 10 EMA, beyond the previous swing, beyond the previous continuation pattern, etc)
f. An example can be seen at https://docs.google.com/spreadsheets/d/167OF2gVsJR...
4) Look at charts and scroll back in history and look for your entry criteria (3a).Then execute what you wrote for 3b, 3d and 3e; make a note of the results.Now do that 99 more times for a total of 100 back tests.If you can clearly see your plan needs adjusting (and it usually will), make those adjustments and start over.
5) Find your entry criteria 100-1000 times.Yes, I typed that correctly, one thousand.Why so many?Because to be disciplined, you must switch off your emotions completely and operate from the logic side of your brain.Hear Barbara Hammond, a Real Life Trader, talk about her experience with starting the 1000 Gap N Go challenge at https://www.youtube.com/watch?v=rTgJ9ScUQeA
6) Follow your trading plan virtually for three months or 50 trades.Were you disciplined enough to follow it? Were you profitable? (Note For credit spreads, you may want to trade virtually for six months, or 100 trades or longer, due to the extreme need to have a good defense with credit spreads)
7) Make your own decision if you are now ready to trade with real money.If yes, consider starting with a small amount of money for three months or 50 trades, before implementing your new strategy full scale.
Realize that becoming proficient at a new strategy takes between six months to two years.It is important to remain disciplined and patient, which is difficult when you see more experienced traders using many, many strategies depending on the situations they encounter.You must remember that these traders built their strategies over years and years and some learned hard lessons by losing lots of money by not following the guidelines above. Ask yourself "Do you have six months to two years to become a consistently profitable trader, or would you rather rush into trading real money and risk blowing up your account (blowing up your account means losing it all or nearly everything)?" Yeah - me too.Oh and just fyi, just about EVERY profitable trader I have talked to has blown up an account at least once (and yes, I took a $10k account down to under $1300)
Ready to take it to the next level? Read Angie's 5 Suggestions to get you started in Thinking In Stock Market
Trade on Logic, Not on Hope