Introduction

By now, you have probably numerous articles written by professionals telling you how to succeed in trading. These posts were basically telling that you do X or follow plan Y, your trading skills will improve significantly and you will be one step away from retirement and living the dream.

And then reality kicked in, you actually tried, follow the plan step by step but it didn’t work. So you read another article, another tip and nothing changes. Why?! I asked myself the same question, and to be honest the answer is quite simple, there is no magic trick, there is no single trick that works generically for everyone and there’s no plan for beating the market!

So, instead of telling you what you should do, I will tell you what I do and leave the choice with you if you want to follow or not. I will not claim that I have a method to make you a millionaire overnight and all this crap… I will simply write 10 points which I do my best to follow, 10 painful points which I had to learn by mistake and money loss…

1st Commandment – Trade one product

Just like the first commandment “I am the Lord thy God” I learned the hard way that less is more. I used to trade up to 10 products simultaneously, trying to follow up all the news, all the events, around the clock, non stop. I missed opportunities, closed positions too late, my VAR was insane and overall, I lost more than I gained.

It might sound weird and counterintuitive, but since I started trading only one product, namely – EURUSD, my returns improved significantly and above all, I wasn’t worried anymore from burn out. Unless you have some extraordinary artificial intelligence trading system who can go through thousands of news items and understand the impact on the market, then you may ignore what I wrote above. But honestly, my life became much more easy when I started running my algorithmic trading system on EURUSD only. Even it’s 95% automated, there are some events which I decide to switch it off, like high volatility ones as non farm payroll in the US (so called NFP), or end of a period to capture the return for that time, so, having it run on a single product, gave me tight control on what’s going on.

Now, if you think that I miss other opportunities or make less than I used to, believe me I am not. When EURUSD is ranging, I scalp it, when it is trending, I go with the trend and when it’s undergoing some high volatility event, I either ride the wave or pull out. Since I switched, I made in the first month 3.94% and 1.90% in the second.

just to give an example, looking at the upcoming events for the following week using Forex Factory calendar, it was insane and stressful to follow all the high volatility events for the week for all the products I traded, each one can either makes a lot of profit, or ends in a loss:

Full calendar

Now, filtering for EURUSD, it’s much more easier to follow what’s coming and act accordingly, from 22 high impact events, it went down to only 9 I need to track:

Filtered events

2nd Commandment – Become product expert

Going along with the 1st commandment and with “Thou shalt have no other gods before me”, it is critical that now that you chose a single product, become an expert on it, and I am talking to know the internal organs of it if needed:

  • What is the current rate?
  • What was the rate a month ago?
  • What is the expectations of the price to go this year?
  • Where can you find reliable information on the product? Is it a blog? New agency?…
  • Are there any analysts covering this product? Is it possible to follow them?
  • What is a typical volatility of the product? What is a typical a technical indicator of this product?
  • When is the best time to trade it? Morning? Afternoon? Monday?
  • Is the product pegged to another product? Are the governments involved tightly overlook the price? How is supply and demand works for this product?
  • Which impacts certain news events have on the product, what happens to the price if the outcome is above/below expectations etc.

These are some of the questions you need to know even you get woken up in the middle of the night, especially the current price! And that’s what I learned on EURUSD, compare to trading and learning ten products in parallel and knowing their behaviour on the surface, I dig deep into EURUSD and understood how it behaves and what impact it.

Only when I truly understand the product I am dealing with, I started to trade it successfully. I minimised the surprise factor to a minimum and then I automated what I learned. You could argue that I over optimised my system for this single product, but that’s actually what I wanted, there is no single system fits all in my eyes anyway…

On the other hand, if at some point in the future the product I chose will fail and proves itself unworthy anymore, I will move on and choose another one, just to say, it is not till death do us part, only until the product cheats on us again and again so we have no chance but move on with our life.

3rd Commandment – Manage risk

I already dedicated a full post about managing risk just to stress how much it is important. The majority of accounts blowing up is due to poor risk management, meaning opening far too many orders with massive lot sizes which can’t be managed. And once the margin is below the critical level, each order gets closed one after the other leaving the investor with nothing. It happened to me so many times when I started trading years ago, super frustrating!

And still, it is always amazes me to see people posting pictures of their accounts claiming they made thousands in couple of days, then people are super excited and actually follow these clowns. Every time I took a chance and follow these over-leveraged account they blew out, it is not the way it should work.

Just as an example, I recently followed a guy who claimed he was able to make 3,000$ every week using an initial investment of 1,000$ which is of course not possible, guess what, here was his account after couple of weeks:

So things started to get out of control, then what he did was even more insane was to open more positions agains the trend, obviously EURUSD was going down but this guy went with more positions against it, only to get:

Obviously, it didn’t less for long and his account got blown up…

As a rule of thumb, perform this calculation BEFORE opening a new order:

  1. Sum up all the lots, longs as positive, shorts as negative
  2. Get the absolute value of the previous step
  3. Multiply with 100,000
  4. Divide with your account balance

For example, the guy had 8 long positions of 0.25 which is 2 lots in total minus two short positions of 0.25 which leaves us with 1.5 lots. Multiply with 100,000 gives 150,000 and dividing with his equity is 150,000 / 2,087 = 71. This is INSANE leverage, so called effective leverage of 1:71. When I speak with investors, they want values in the range of 1:5-6 maximum.

So bottom line, I always make sure my risk is under control and I never over leverage and keeping my trading under control. For example, one of my algorithms has effective leverage of 0 as I am net zero on both directions:

The numbers might look small, but as I am trading over Darwinex, the investor copies the strategy and enjoys a nice return 1-4% with minimum risk.

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