00:00Last week we started talking about the tedious process of trading review and improvement.
00:05Today we should be able to wrap up that discussion, so don't go away.
00:13Hi, this is Tim from TradingStrategyGuides.com. Welcome back to our channel.
00:17In last week's video we started to discuss the process of reviewing our trades
00:22and using that review to identify possible improvements to our rules.
00:27Today we'll continue.
00:31Some parts of your trading system are fixed and can't be adjusted or replaced while other variables are more flexible.
00:39They're fixed in the way that they're drawn or how they appear.
00:43For example, a fixed element would be support and resistance levels or supply and demand areas.
00:50Basically, all the things that complement your strategy and are completely essential for what you're trying to achieve is a
00:58fixed element.
00:58The variable elements of your trading strategy are the things around the fixed elements that help you spot a trading
01:06opportunity.
01:08One example of variable elements are your indicators.
01:11You can adjust the settings to see what works best for your system.
01:16For our strategy we use the stochastic indicator, which is a momentum indicator.
01:22As a general rule of thumb, if you have more than just one element that's trying to show you the
01:27same thing in your system,
01:28then you should choose one of them and get rid of the rest.
01:31Having multiple things on your chart that show the same thing doesn't mean that it will be more accurate.
01:38Instead, you'll just have a lot of conflicting signals.
01:41You need to play with your strategy and tweak and upgrade your trading system slowly, one step at a time.
01:49If you're using the stochastic indicator, you need to test it with different settings to see which works better.
01:57If you're using a specific candlestick pattern or price action setup for your entry,
02:02you can test different variations of that setup.
02:04Maybe if you're waiting for a second confirmation candle, your strategy will improve.
02:11Instead of using arbitrary settings for the technical indicators that have no relevance to the actual market price,
02:19consider using a time period that has some bearing on the price.
02:23For example, if we notice that the market is in a 40-period cycle, then use that for the stochastic
02:29indicator.
02:31You need to systematically test every single variable in your system.
02:35This is something that you're not going to be able to do in a single day,
02:39but you'll accomplish this slowly over time while you get a better understanding of the market.
02:45You can list all the variables that you've changed through this process of optimization in your trading journal.
02:51The most important thing is tracking everything you do because there is no point in backtesting your strategy without doing
02:59so
02:59because you'll never see what actually works best.
03:03What I'm saying is that you should do this as a scientist would go about running a series of studies.
03:09Meticulously record every detail and go through them systematically,
03:14one change at a time, to be sure you see the results of each change you make.
03:20And of course, record the results.
03:23And remember, one result is nothing more than a wild guess.
03:28Trading is based on probability, so you're going to have to run multiple tests over time on each variable
03:34to be sure you get a representative sample of all the market times, days, or seasons.
03:40I do this using multiple trading platforms that run simultaneously on my test system
03:46so I can get more results faster.
03:49Reviewing past trades can reveal essential information about your trading
03:54that can lead to more accurate trades and better performance.
03:58You really need to review not just your losing trades but your winning trades as well.
04:03Reviewing your losses and comparing it to your strategy
04:06will help you to know whether or not the problem is really with your strategy
04:10or if you're just negatively impacted by a shift in the market.
04:15Now, losing is part of the game and some trades won't work out
04:19even if you're meticulously implementing your trading strategy.
04:23So you need to distinguish between losing trades caused by human error
04:27and normal losing trades caused by your strategy just not performing well
04:32in that particular market situation.
04:35You really have to look at your trades and understand the market for what it is
04:39and then determine whether or not you really made an error or not.
04:43Reviewing your winning trades will help you make more profits later
04:47by capitalizing on your strengths.
04:49What you need to do is to build on good habits
04:53and trade only those setups that have proven in the past to generate the most profits.
04:59And remember, most trading is seasonal.
05:02For example, right now it's summer in the Northern Hemisphere
05:05and I've taken an abnormal number of losses with my personal strategy.
05:10I've reviewed this strategy over the past few years
05:13and have realized that I go through a drawdown beginning mid-June-ish
05:18and ending mid-September-ish.
05:21But even during that time, I had some pretty big winners.
05:26I'm currently analyzing my strategy to see if I can change it
05:30to allow me to get those winning trades and avoid those whippy losers.
05:35In any case, I'm reducing my trade size during that time
05:39to lessen the impact of the summer trade conditions.
05:43Of course, all of this comes down to documenting all your trades in detail
05:47to be able to review them.
05:49This is another reason why a trading journal is important to your development as a trader.
05:54It's also the reason why I screenshot all my trades at the crucial times.
05:59Basically, when I identify the setup,
06:02when it triggers a buy or a sell signal,
06:05when it hits the target,
06:07or when it hits either the full stop or the trailing stop.
06:11I hope this video motivates you to look through your past trades
06:15because it will help you spot your good trades,
06:18the parts of your strategy that need improvement,
06:22the type of trades you should take more often,
06:24and the type of trades you should avoid.
06:27A lot of novice traders jump from trading system to trading system.
06:31You're never going to be a profitable trader if you're going to do that.
06:35Instead, you should constantly evolve and improve your own strategy
06:40through reviewing and optimizing your past trades.
06:44This will allow you to rely on your strategy completely
06:47because you've tried and tested it by yourself.
06:51And confidence in your system is extremely important.
06:55The only constant in this market is that it's never constant.
06:58It's always changing.
07:00So we need to make sure that we're constantly optimizing our trading strategy.
07:05Don't be afraid to substitute some elements of your strategy
07:09and test them too
07:10if you believe it will improve your trading performance.
07:14It might sound like a lot of work,
07:15but trading is a job with lots of big money at stake.
07:19So you need to think like a professional
07:21and put in the hard work to achieve your goals.
07:23And that's it for today's video.
07:25Come back for my videos on Monday, Wednesday, and Friday
07:28at 3 p.m. New York time.
07:31Don't hesitate to ask any questions you may have.
07:34Remember, the only stupid question is the unasked one.
07:37If this video helped you, smash that like below,
07:40subscribe and hit the bell if you want to be notified
07:42of our videos in the future.
07:44Have a great Wednesday, and I'll see you on Friday.
07:49Have a great Wednesday, and I'll see you on Friday.
07:55Have a great Wednesday, and I'll see you on Friday.
07:56Have a great Wednesday, and I'll see you on Friday.
07:57Have a great Wednesday, and I'll see you on Friday.
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