00:00Last week we talked about your trading journal. That journal is only good if you actually use it to analyze
00:06your trading.
00:07That's what we're going to talk about today. Don't go away.
00:13Hi, this is Tim from TradingStrategyGuides.com. Welcome back to our channel.
00:18You may remember from last week's video that trading is about probabilities and statistics.
00:23We develop strategies, test strategies, record the results, review our performance, and improve our strategy based on the results of
00:31our review.
00:32Last week we talked about the trading journal where we can record our results.
00:36And over the next couple of Wednesdays we'll talk about how to use that journal to review and optimize our
00:42performance.
00:43Today's video will be short and we'll set up the scenario to continue the discussion next week.
00:49Pretty much every trader wants to improve his trading strategy so that you can ultimately make more money.
00:54In order to get to the point where you can improve your trading, you first need to go through the
01:00preparations to create your strategy
01:02so that you can later be able to review your trading rules and trades.
01:07However, in order to be able to review your strategy, you also need to have a logical system
01:13or you won't be able to properly review what you're doing or put any trust in your system.
01:18It's been said that if you can't sum up your trading strategy in a few sentences, the chances are that
01:24your strategy is not logical.
01:27So, you need to be able to break down whatever you're doing into its fundamental parts.
01:32This, in essence, is completely logical and you'll be able to review it.
01:37That will allow you to not only optimize your strategy but also improve as a trader.
01:42So, in order to optimize our trading system, break it down into the standalone parts
01:48starting from your entry and exit techniques and move on to your trade and money management.
01:54Let's first start by defining our system goals and identify what we are trying to achieve with our trading strategy.
02:01Are we looking for reversals, breakouts, or trend continuation setups?
02:07Under what trading environment are we looking for them?
02:10Reversals on the daily chart or intraday breakouts?
02:14The key to a good system objective is that it has to be logical, succinct, and not contradictory in any
02:22way.
02:22If you overcomplicate it, it will be harder in the heat of the trading battle to concentrate and focus on
02:28your strategy.
02:29Let's assume we trade based on a trend-following strategy that uses the daily time frame to determine the overall
02:36direction of the market.
02:38The goal is to get into a trade on a retest of a broken support or resistance level.
02:43We're also going to identify the hourly chart as the time frame used to time the market.
02:49To start with, we need to have some monetary goals in place,
02:52so when we review our trading performance, we can discern if our strategy is aligned with our goals.
02:58For example, we can set the following monetary goals.
03:01A positive reward-to-risk ratio of at least 2 to 1.
03:05We make sure our winners are bigger than our losing trades.
03:08The strategy has at least a 50% win rate.
03:12Because we have a 2 to 1 reward-to-risk ratio,
03:15a 50% winning rate is enough to still come out positive.
03:19And we want to make at least 10% each month.
03:22For the purpose of this and the next video,
03:25we're going to outline a very basic trend-following strategy that uses the following rules.
03:31We'll use a daily swing high-low price structure to determine the trend.
03:37We will trade only in the direction of that trend.
03:40We will then drill down to the 1-hour time frame.
03:43If we're in an uptrend, we'll wait for a broken resistance to be retested.
03:48And if we're in a downtrend, we'll wait for a broken support to be retested.
03:53And we'll use the stochastic indicator for overbought, oversold confluence
03:58when we retest the broken resistance and support.
04:03The entry trigger will be based on a 2-candlestick reaction from the support or resistance level.
04:09And our stop loss will be 30 pips below the support level.
04:12And the take profit will be 60 pips above the entry level.
04:17In other words, a 2 to 1 reward-to-risk ratio.
04:20This is what you'll be looking for,
04:22for the daily chart on the left and the hourly chart on the right.
04:27Now this is an example of a trading strategy we'll use in next week's video
04:31to go through the review and optimization process.
04:34The review and optimization process is something you'll want to do regularly
04:39so you will be able to react to changes in the market
04:43and modify your strategy to increase your profitability.
04:47And that'll wrap up today's video.
04:49Come back next Wednesday at 3 p.m. New York time
04:53and we'll do the second half of this video.
04:55Come back on Monday and Friday at 3 p.m. also,
04:59barring unforeseen circumstance, for my other videos.
05:02Don't hesitate to ask any questions you may have.
05:06Remember the only stupid question is the unasked one.
05:08If this video helped you, smash that like below.
05:11Subscribe and hit the bell if you want to be notified of our videos in the future.
05:16Have a great Wednesday and we'll see you on Friday.
Comments