Defining Your Edge and Putting It To Work : A Step by Step Strategy
I believe that every strategy must belong to and be executed by the trader who made it. Here's how you can make one.
I'm not going to write about strategies. You can scroll down and find some legends who have amazing ones but I believe that every strategy must belong to and be executed by the trader who made it. Here's how you can make one.
1. Find all strategies/trades/systems that have worked for you in the past. Realise that they all were a part of a larger pattern that you would want to understand better and execute consistently. If you've never traded before, come back with scars. This isn't for you yet.
2. Analyse the strategies that have been profitable.
3. Eliminate strategies that exceed your risk tolerance.
4. Start testing each shortlisted strategy : Take 20 trades with a fixed size that you are comfortable with.
5. Do this for every single strategy you've shortlisted and take notes about which ones are most profitable AND most comfortable/least stressful. 10% of my usual trade size worked for me.
6. Pick the best two. I'd say one, but humans lie to themselves.
7. Take 20 trades with 4x the size of step #4. Zero thinking/analysis : just follow the edge you defined.
8. Which one was more profitable FOR YOU? Pick that strategy. Mark it on everything you're trading and eliminate any other setup that forms : but don't trade this strategy just yet.
9. Backtest the second strategy that you shortlisted. If it did better, repeat step 7 with it with the same 4x size. If not, repeat step 7 with the strategy that you initially picked, now with 6x size.
10. If your strategy worked, stick to it and skip to step 12. If the second one worked, repeat step 7-9.
11. Size up now. What are you really comfortable losing. Ignore your conviction on trades, just settle on a fixed position size that you're comfortable to lose. Stick to it. (I'd start with a maximum of 1% risk of my trading account) This is the step where you understand whether you've been lying to yourself all along or not. Take 20 more trades.
12. If you fucked up more than 5 of those 20 trades out of intuition/news/gut-feels/market-fuckery : go back to step 4. If the strategy was profitable for you, stick to it.
13. Whenever you feel FOMO on a strategy someone pushing out banger trades is following, backtest it and repeat steps 4-13.You'll know if it's for you or not.
14. Analyse your strategy every few weeks. That is your edge. Make it sharper, journal every trade, refine your strategy, find your demons and kill them. I journal everything on Edgewonk but a simple notepad does the same if you're diligent.
15. Every once in a while, touch grass. That's what we're here for.
TL;DR : Trading isn't for you. Stick to your 9-5 and be happy like the rest of the world.
Owe it all to Mark Douglas, Charlie D & @Trader_Dante