trading. Remember, it’s mine, you can use it, but adapt it, personalize it to fit you.
Business Plan
Business plan - My trading system starts with proper goal setting and a
well-defined business plan. Understand that you have embarked on a
business venture. Unrealistic expectations can be one of your biggest
enemies. What is it that you want? Not what you think you want or think you
ought to want. What is it that you really want? You will be surprised how, after
a little examination, you may come up with goals that are different, even very
different from what you thought. I want to make money is not a goal. A goal is
I want to make money because….or I want to make money in order to….and
that ‘because’ or that ‘in order to’ is critical to your trading success. It is about
being realistic and honest with yourself.
Whatever your goals are, make sure you keep your feet on the ground.
Always ask yourself this simple question: Am I trying to achieve the
impossible? You cannot make returns of 100% on capital per month. Yet
there are service providers selling this absurdity to the public. You may be
lucky and do it once using high gearing but I guarantee you this: you will not
do it month after month. Unscrupulous service providers are after your
money. Don’t believe their promises or stories. “Open an account with
just $500.00. It gives you buying power of $100,000!” This is a business -
your business, don’t confuse it with buying a lottery ticket while running
errands.
Your business plan is an organized process to work towards those goals.
Both the setting of realistic long-term goals and the concept of a business
plan should place you in a frame of mind that will increase your chances of
making a success of your trading. The business plan should include certain
“what if” scenarios, the usual “S-W-O-T” (strengths-weaknessesopportunities-
threats) analysis, market research and several other aspects
peculiar to a trading business. Reading this book will contribute to your
general market research and the development of a profitable business plan
you can implement. It even gives some strategic guidelines and
methodological pointers. It is not a 1-2-3-you’re-a-millionaire-if-you-doexactly-
this-or-your-money-back-guaranteed-guide.
4x1 strategy
4x1 strategy - To implement my business plan, I have a 4x1 strategy, one
currency, one lot, one direction, one percent
One currency
Concentrate on one currency. Get to know it. Don’t jump back and forth.
One lot
Low gearing. Small position size.
One direction
Trade in the direction of the “fundamental” trend. Be disciplined and patient.
One Percent (1%)
Understand profit – what it is and when to take money off the table.
Median Trading
Median trading - The specific methodology I use to make the nitty-gritty
trading decisions I call “median trading”. Those of you who may have been
around the block a few times, will immediately recognise that the parameters
of this methodology are neither original nor new and are used by other
successful traders. It remains an interesting, and perhaps instructive fact, that
many successful traders use much the same basic principles. My 4x1
strategy is deployed within a comfort zone I get by ‘snapping’ a static picture
of the market and fixing it in my ‘median grid’ based on the principle that price
always reverts to a median. My median grid is divided into price levels. This is
an important concept. Exactly because intra day pricing is virtually random I
substitute fretting about entries and exits at specific prices with a
system of identifying ever changing buying and selling price levels of 20
– 50 pips, depending on relevant factors such as account size, gearing and
so on.
This provides a comfort zone because there is a high probability that
immediate future price action will occur within this demarcated zone. It
provides flexibility and room-for-error (another very important concept in
discretionary trading), in which both discretionary and non-discretionary
technical trading produces good results. Price levels, rather than specific
prices at specific moments in time are buying and selling zones. This also
determines the time frame I use. I use a time frame that I feel is
“manageable”. This means I can relate cause and effect (information
and resulting price action / price changes). When I can’t I can’t. I call it
noise and ignore it, rather than find a reason just in order to say I have one. I
accept it. The market moved. That’s it, let’s get on with things. No one can
tell you what is happening all the time.
I can also anticipate price changes based on known future events. I can
gauge the size of the price move based on the impact of the event. I can also
discern between noise (meaningless price changes), trend following /
supporting / enhancing price changes or trend changing price changes.
Relational analysis
Relational analysis - Unlike many other good, successful traders who rely
solely on technical analysis, I make a lot of use of fundamental analysis
(anything that is not technical or psychological). I believe in a holistic
approach, the more relevant analysis you include in your trading decisionmaking
the better the decision-making is going to be. Relational analysis is
what brings it all together, the meaningful relating, one to the other, and
all to one, of Price, Event, and Time (PET). You must learn to ‘see’
connections which are not obvious. This applies especially to major
fundamental trends. What are the factors at play today that will cause us to
look back in three months’ time and with the perfect science of hindsight see
the obvious trend. If you can see the trend developing with that type of
foresight today you are 90% of the way there.
SIMPLIFICATION
There is a temptation, when faced with complexity, to reduce and simplify. That is
sometimes necessary, even good, but how much simplification does this complex
market allow before it punishes you, not for simplifying, but for being simple? That is
the question all traders face everyday. There is no easy answer but finding an
acceptable, workable answer will make you a winning trader. It will require you to
grapple with this complexity and find your own way through the maze. If I am making
it sound difficult then let me say that it really isn’t. It’s not a stroll, but most people will
manage if they apply the basic rules. There are buyers and there are sellers.
Sometimes the buyers are in charge and the market moves up. Other times it is the
sellers and the market moves down. And sometimes the buyers and the sellers are
slugging it out with neither gaining the ascendancy and the market moves side-ways.
But within this seemingly simple ‘battle’ a lot is going on behind the scenes.
