A simple, focused trading plan

What would I say to my younger self about how to trade?

I’d start by explaining how financial trading works.

In essence, financial trading is no different from any other exchange—buy and sell higher or sell and repurchase it at a lower price.

And the concept of opening a ‘short’ position and repurchasing it at a lower price to make a profit would take some convincing.

So, let’s assume I understand anything that is googleable and get down to what matters.

What matters most is the risk—because the risk is under the trader’s control.

I control risk through overtrading awareness, trade size and my take profit and loss plan.

Each element of the above has to be a thoroughly ingrained and practised habit.

As part of the loss plan, I look at it for what it is and let it go—because every trade has its discrete outcome.

Detachment means the outcome of a trade does not define me. It does not mean separation from risk—as that would be foolhardy.

My goal when I trade is to find my alignment with the market.

I take every setup opportunity. However, if I’m not happy with either the market or myself somehow, I reduce my trade size—but I must take the trade.

I grab small definable chunks in repeatable rotations of the market in a timeframe that’s comfortable to me.

I take one or two trades a day—win or lose. But I often go a few days without a setup and, therefore, without an entry.

I’m interested in the statistical probability of something continuing after a specific event.

That event is defined by price action, zones of support and resistance and bar by bar momentum.

I focus on one currency pairing and one market session.

The pairing is the British pound to the Japanese yen (GBP/JPY). And the market session is a couple of hours on either side of the New York open.

Yes, my approach has become significantly more focused recently. I ought to have had this conversation a couple of years back!

Don’t lose money

Don’t lose money, is a Warren Buffett motto.

The sentiment applies to all investments, but as a financial trader, I need to be clear in my mind what this message means.

My goals are: (1) protect the account, (2) make some money, (3) make a lot of money.

As with any business, and unlike investing, to trade necessitates taking losses. It’s part and parcel of doing business.

Protect the account

Protect the account (or don’t lose money) means to follow the rules. Such rules have to be agreed, understood and written down. Determining trade guidance at the point of or during a trade’s activation is unacceptable.

If you glance at my trading plan, you will notice that the rules are not complicated or excessive—however, they are necessary.

For instance, before taking a trade and as part of my strategy I need to be sure that a potential reward is at least equal to my initial risk; and I need to trade at a size that if lost will not break my 5% weekly rule. The list goes on.

As an intraday trader (which means I mostly day trade but now and again trades will be held overnight) trading is relaxed, but at the moment of a trades activation, it can all happen in moments.

If I break a rule, it is classified as a mistake and needs to be brought out in debrief and corrected—irrespective of whether the outcome was positive.

Protect the account does not mean to be tentative with a trade or take profits too early. It means don’t make mistakes—don’t break the rules.

Make some money

If my rules work, and I don’t break them, and my methodology is sound, after one hundred trades (about 30 days) I am sure that I will make some money.

And that is the bedrock of it all—doing the same thing well over and over without mistakes. If I do that (we) will profit.

Make a lot of money

Albert Einstein famously said that compound interest is the most (potent) force in the universe.

How to make a lot of money is compound the trade amount. I do this at the start of each week. I adjust my risk/reward percentage to reflect the account size. (Note: if not an expert then a monthly adjustment is more appropriate).

If I follow my first and second goal, then the third (the real purpose of it all) will happen.