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EP150: The 3-Part Method for Sticking to a Trading Strategy
In this episode of Truth About FX, Walter spills the beans on the best way to keep track of your system and beliefs. How will you know if you’ve found “the one”? Walter lets out a three-part process that has helped him stick to his system that involves reducing risk, avoiding drawdowns, and improving your execution. All this and more in this episode of Truth About FX.
Download (Duration: 07:50 / 9 MB)
In This Episode:
00:31 – drop a system
02:08 – end game
04:29 – bone
06:22 – bluffing
Tweetables:
Understand your risk [Click To Tweet].
Trading is a game [Click To Tweet].
Do what you believe in [Click To Tweet].
Hugh: Hi, Walter. Somebody wrote in and asked: They have trouble sticking and believing in a system. Sticking to and believing in their system. They tend to drop a system as soon as it starts showing less than stellar results and they’ll start looking for the next Holy Grail. What would you say to them?
Walter: This is really common. In fact, we have another question that came in just before this one and it’s basically the same question so this happens a lot. I’ve been there and I know what it’s like. It’s really frustrating to have a situation where you think you have the perfect system.
You trade it for a while, it doesn’t look good, and then you need to find another one, or you need to tweak the original one but eventually you’ll give up and you’ll find another one.
There’s a three-part process to this. Number one, go to fxjake.comforex/risk and plug in your reward to risk ratio, your win rate, and the risk per trade. Assuming that you’re keeping the risk same per trade like 1% or 2% or whatever, and then what you can calculate is the chances or probability that you will hit a drawdown of X%.
Let’s say you’re trying to avoid a 20% drawdown, you can plug all your numbers in. Plug the amount that you’ve been risking and see if you’re going to hit that drawdown level. You may be surprised.
What that means is you need to reduce your risk if you want to avoid that drawdown level. Why would you do this? Because the number one reason why traders give up on a strategy is because they end up hitting a drawdown that they didn’t anticipate and they freak out. That’s number one. Understand your risk.
Number two is, is this a strategy that you really believe in or is this something that somebody posted the results on the internet and said, “Look at this. This is so amazing,” and you just said, “Oh, I’ll copy that.”
If you do that you’ll always get… The end game of that is you’ll always end up changing or dumping the system. Always. All of the time. Like a 100% all the time. You need to make sure that what you believe in is mirrored in your strategy.
If you don’t believe that the best way to make money is from a runaway market that’s just going and going and going, then you can’t trade the trend system. You’re not a trend follower. That’s number two.
And then, following number three is if you really, really, really believe that this is the system for you and you understand your risk profile and you understand that y...
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By Walter Peters (FXJake) and Hugh Kimura (Trading Heroes)In this episode of Truth About FX, Walter spills the beans on the best way to keep track of your system and beliefs. How will you know if you’ve found “the one”? Walter lets out a three-part process that has helped him stick to his system that involves reducing risk, avoiding drawdowns, and improving your execution. All this and more in this episode of Truth About FX.
Download (Duration: 07:50 / 9 MB)
In This Episode:
00:31 – drop a system
02:08 – end game
04:29 – bone
06:22 – bluffing
Tweetables:
Understand your risk [Click To Tweet].
Trading is a game [Click To Tweet].
Do what you believe in [Click To Tweet].
Hugh: Hi, Walter. Somebody wrote in and asked: They have trouble sticking and believing in a system. Sticking to and believing in their system. They tend to drop a system as soon as it starts showing less than stellar results and they’ll start looking for the next Holy Grail. What would you say to them?
Walter: This is really common. In fact, we have another question that came in just before this one and it’s basically the same question so this happens a lot. I’ve been there and I know what it’s like. It’s really frustrating to have a situation where you think you have the perfect system.
You trade it for a while, it doesn’t look good, and then you need to find another one, or you need to tweak the original one but eventually you’ll give up and you’ll find another one.
There’s a three-part process to this. Number one, go to fxjake.comforex/risk and plug in your reward to risk ratio, your win rate, and the risk per trade. Assuming that you’re keeping the risk same per trade like 1% or 2% or whatever, and then what you can calculate is the chances or probability that you will hit a drawdown of X%.
Let’s say you’re trying to avoid a 20% drawdown, you can plug all your numbers in. Plug the amount that you’ve been risking and see if you’re going to hit that drawdown level. You may be surprised.
What that means is you need to reduce your risk if you want to avoid that drawdown level. Why would you do this? Because the number one reason why traders give up on a strategy is because they end up hitting a drawdown that they didn’t anticipate and they freak out. That’s number one. Understand your risk.
Number two is, is this a strategy that you really believe in or is this something that somebody posted the results on the internet and said, “Look at this. This is so amazing,” and you just said, “Oh, I’ll copy that.”
If you do that you’ll always get… The end game of that is you’ll always end up changing or dumping the system. Always. All of the time. Like a 100% all the time. You need to make sure that what you believe in is mirrored in your strategy.
If you don’t believe that the best way to make money is from a runaway market that’s just going and going and going, then you can’t trade the trend system. You’re not a trend follower. That’s number two.
And then, following number three is if you really, really, really believe that this is the system for you and you understand your risk profile and you understand that y...