My Trading Approach for 2020 and Beyond
In this article I want to write about my experiences with trading so far and especially in 2019. Down below I will reveal you EVERYTHING I’m doing currently – the whole strategy I’m implementing every day for this decade.
Lately I’ve been away from trading for about 3 months and I came up with a plan for the next decade, learning from the past. But first, story time.
Last year I tried to get into day trading prop firms like SMB Futures and Topstep Trader. I thought: well I don’t have enough money, these prop firms might leverage my trading.
Man, was I wrong. Let me tell you this: prop firms are not a solution. Here’s why.
Firstly, they say you get $100k to trade with, when in fact they let you only trade an account that just fits the bare minimum for a single future contract’s margin requirement. Yes, you heard that correct.
Secondly, the restrictions are unrealistically high. I won’t go into details about the exact rules. You will have daily loss limits and trailing drawdowns, just to make sure you don’t cause the firm a tiny bit of loss.
Overall, prop firms restrict you in every way possible. They want you to be a godlike trader, a thing of near impossibility. You get in a drawdown once in your life – you’re out – not a godlike trader. Months of hard work, lots of money. Gone.
Better Trade Your Own Money
Having said that, let’s talk about money.
When I say that money makes a difference for beginning traders, I really stand behind my words with a lot of experience of having traded with little and a bit more money. It’s a difference if you have $30k to start with or $1k. The main thing is: you can’t trade stocks with $1k. At least not in a short-term manner.
Side note: My definition of trading is if you open and close at least 70 positions in a year to compound your percentage gains with a good expectancy. Calculate by yourself: what this would mean if you were to trade stocks with $1k, counting in the commissions. You’ll see it’s a near impossibility.
Now that you don’t have the big choice starting small you probably are getting into Forex and CFD’s as a non-US citizien or into micro futures and options as a US-citizien – or both! But let’s talk about one of the most popular markets: Forex.
Forex and Expert Advisors
Forex is a low volatility market. Compared to DAX, it has only half the standard deviation. It’s a market that forces you to slow down. I traded it in 2014-2017 very actively, too actively. However, forex is a nice market for swing trading, a good addition to a list of uncorrelated assets.
Overall, I wanted to be able to choose assetes in a bigger opportunity set and overcome the problem of overtrading, that I had when there’s no volatility in my “favourite” day trading markets. So that was going into my style as you will see.
Also, in the 3 months I wasn’t trading, I coded and researched a lot. 1000’s of lines of code, getting into machine learning algorithms, trying to build a pattern recognition bot, that is based on monte carlo simulation data, repeated into walk forward tests etc., complicated stuff.
But I’m not the first time into algo trading. Back in 2018, I lost about $9k because of an overfitted, unrealistic Expert Advisor that I had written. It looked good in the backtest – in reality it just tumbled down. This was the start of many stability tests, that prevented these kind of overfitted mechanical trading systems for then.
Why it’s so hard to automate trading is another thing, that lead to my current trading style.
Learning & Adapting
I, for sure, tried a lot of things always knowing I could fail. In trading your assumptions and hypthesis are very often very wrong. Giving up is not an option for me so there’s only one thing I could and you can and should always do: make changes – not excuses.
There was this one thing I learned from day trading the DAX: some days are just not volatile and you’re starring at nothing, which leads to overtrading.
There was this other thing I learned from thousands of hours of coding robots: mostly any algorithm, based on price action, will ultimately fail stability tests. Your own brain is a hell of a pattern recognition machine, with an ability to find subtleties in the overall state of different markets like no algorithm ever could do.
There is also my 6-years-long research about statistics, finance mathematics and risk management: Correlations matter and most people don’t get them right. Standard deviations are all you need for stop losses and position sizing is about reaching your goal. (You can calculate position sizing goals on my risk simulator.)
You Must Know Your Weakness
There is, even to this day, a big enemy inside myself.
When I try to name it, it is uncomfortable, it’s a little “victim-complex”, that gets triggered when a trading position seems “unfair” to my “world view”. It’s when a stop gets triggered for a tick and then my goal is reached or when I miss out a trade for a tick and the market goes away without me. What follows is bad-quality-trading.
Good that I know of this demon. It can really destroy your trading and you have to be aware of it. I now always have a small list in front of my eyes that tells me exactly what good trading is about, and I’m forcing myself to count down (stop my emotional reaction brain) and look at my list (making me clear what a good trade is) every trading-decision-time. Very important stuff. You have to figure this out or everything else is a self-destructive endeavour.
I really want you to understand how all of my decisions for my current trading style are hard-fought within myself with a lot of money, time and energy that was going into it. All of the problems and difficulties, as well as the the things I should not do, were forged into my trading style.
The most valuable insights and experiences within myself are the foundation of an ever growing stable mindset that I possessed over the years. Now to the strategy itself…
It’s not easy to describe it with just a few technical listings, but I’ll go ahead and make it as clear as possible. I really have no intention to keep a secret of what I’m doing, because I know that most people aren’t even in a mindset to execute on my ideas.
These are the markets I currently trade. My platform is Metatrader 4 (just because it’s easiest for me to code in mql4). I’m mainly looking for uncorrelated markets and whatever the broker gives me that doesn’t hurt my risk paremeters and it must have a decent spread, so that I can trade the hourly chart accordingly.
I never change any of the settings, it’s the same grind every day in- and out.
You can see some lines on the chart, these are volatility levels. They are easy to calculate: 90-Period-Bollinger-Bands and 360-Period-Bollinger-Bands – all lines at the start of a new day, until the next day starts. My own indicator helps me make it more comfortable to analyze.
The other indicator is just candlesticks. Yes, just price action. I’m looking for the setups I know work well – what exactly? Here are my favorite ones:
It always plays a role where they are: I like to have them on the volatility levels. There are reversals in a trend (2 strong candles, a color change and then reversal on level) or on a support/resistance situation.
What I also like are Indecision-Breakouts, where I trade the breakout of a big doji-like candle on the volatility level.
Stops and targets are fairly simple: take a 30-Period-Standard-Deviation, that’s your stop, make a 1:2 target, finished.
My aim is to be a 50% – 1:2 trader. See this chart:
Notice, that you will always deviate from your desired statistics, but just keep going. Sometimes your risk/reward suffers, sometimes your hitrate (obviously in a drawdown). Know what you want with position sizing, and nothing unexpected can happen. Just keep going, even if a whole month is breakeven or a small loss – over a year you will compound, for sure! Let this positive outcome guide you.
You’ll do about 0-4 trades a day with my strategy, entering on the candle patterns with a stop order preferrably.
Dancing With the Belle of The Ball
You always have the choice! There are 15+ symbols of merely uncorrelated asset classes on your screen. (The more the better. If you can take in stocks etc. – take it!) You can see them all at once and it takes a bit of screen time to find the best trade(s) in a day.
Your job is to only find the best of the best trades, and there are always good trades! If you didn’t find one at the end of the day, maybe you missed one. Learn from it, write it down and try to memorize the pattern.
Don’t be A Dick for a Tick
There are two situations when I close my position before the target is hit: the first is in a symmetrical triangle. I just don’t like ’em and hit out.
The second one being when your target is almost hit, about 20% before the target at 1.6 risk/reward: if the market turns around sharply just get out with 1:1 or anything else, don’t hesitate. This will save you lots of money, because whenever you go over 1:1 risk/reward, remember, that’s your profit and you have to defend it. Think again: 50% hitrate and 1:1 is breakeven, anything above is your taking off of the market!
Just do it, if a trade is taken, let it go to the very end. Even if it is a slowly developing one or you regret taking the trade, or feel uncomfortable. Really, only when you pervade like a man (or woman), then you will get into the winning zone.
This isn’t an Exact Strategy?
Not at all. It depends on the 3 things above and all of the other things mentioned. One thing more: let trades come to you.
I chose this style for the next whole decade, because I just want to have a normal life, not being glued to the computer screen and at the same time I enjoy being in the trading game. I look for a setup whenever I want, and when I don’t want, I just don’t care about it. One of the best traders I know said to me: “Trading is me sausage.” (It’s germanized and means “I don’t give a damn aboout trading.”) That’s the mindset of a winner!
So now you have read this article and maybe you don’t even know where to start? It’s very easy: study – study – study.
My current Broker is IC Markets. I like it because it offers a leverage of 1:500, which makes me able to take up to 3 uncorrelated positions at the same time.
Notice: I always have to calculate correlation. Usually a 90-Candle-Period, where I have a script for. You can also just google a correlation calculator. If correlation coefficient is 0.5 for example, that means I can take only half the position size for the correlated underlying.
How to Study to Win
With my broker, I can download data going back to 1999 and analyze EVERY DAY of the history. Just get the volatility lines and candle sticks on the chart, then start analyzing patterns, write them down, memorize them, find similarities, circumstances that are favourable. That’s how you build your own winning patterns, quality patterns, that make you a worthy trader.
If you have any more questions, just let me know. Make the next 10 years your Golden Age!