Transcription
You can follow all the right trading rules, but still feel like you're never getting close to becoming profitable. You can research the perfect strategy, back test it for months, but as soon as you try to execute it live, you just end up blowing account after account. And I went through this exact same thing. I completely failed for the first 2 years of my trading, blowing through dozens of accounts. But now, in the last year, I've scaled to over a million dollars in trading profits. And what I've learned is that profitful trading doesn't follow rules. It actually follows a system.
And so, in this video, I'll show you the exact system I've used to become profitable. And this will be the last video you'll ever need to watch to actually finally start making money trading.
And so, here's a simple system to become a profitable trader. It can be broken down into three main things.
And so, the first part of the system is technical analysis. In trading, it is a game of probabilities. And so, we need probabilities in our favor if we ever want to make money long term. The money has to come from somewhere. It flows from the losing traders to the winning traders.
But the problem is, most traders are just purely gambling, taking random trades at random times and just hoping to make money. 99% of traders end up just being the gamblers. And only 1% of traders actually act like the casino: they have probabilities in their favor, and they consistently make money long term.
And the reason people don't actually make money is because they overly focus on having a profitful strategy. They think a strategy will make them profitable. But in this video, I'll show you that that's not the case. And we need to focus on something that's even more important that actually leads you to make money long term.
And so, the whole goal of this section is just to have an edge, have probabilities in your favor. This doesn't mean you're going to win every single trade, but if you take a 100 trades, you know you'll make money over the long term.
But having probabilities in our favor doesn't actually mean we're going to make money from it. We can still have a profit strategy, a profitable approach, and lose money over time if we have poor risk management. This is boring. No one really cares about this, but it is the most important part of trading. And this is actually where you make all your money.
A simple switch to your risk management can 10 times the amount of money you make. And most people go about this wrong and then make trading 10 times harder than it needs to be. And so, having a solid system around this will allow you to extract profit from those probabilities over the long term without losing or blowing an account.
And then finally, you need to be able to actually execute that edge, execute that risk management plan consistently under uncertainty without deviating from it at all. And most people think that, you know, trading is 90% psychology, that this is the hard part. I disagree that it's mostly psychology.
And the only reason people think that is because they're unaware of the deeper issue that is actually causing all their psychological problems. And I'm going to show you exactly what that problem is and how to fix it later on in this video.
But trading seems pretty simple, right? You just need to have the right technical analysis to put probabilities in your favor. Because there's only two ways to fail in trading: you either lose too often because you don't have an edge, or you lose too big because you have poor risk management. If you just fix those two problems, it's impossible for you to lose money. You'll be a profitable trader.
Then, if you just execute your edge consistently, follow your risk management plan, and execute what you know works, you are guaranteed to make money over time in trading. And it's a lot simpler than you think.
An edge doesn't have to be five different strategies. You just need to define one profit trade using data. You then just need to manage risk to profit off that trade over time. Make sure you're using the right risk reward, the win rate, because that will affect the win rate and the max draw down. And then just consistently take those trades and you make money over time.
And so, first off, most people go about tickle analysis and putting probabilities in their favor the wrong way. They think they'll be able to find an edge or that a strategy will make them profitable when that just doesn't work. The actual truth is no guru will tell you this: is that no strategy will ever make you a consistently profitable trader.
An edge in trading cannot be found. You not stumble across some random YouTube video. An actual edge in trading can only be built through data and experience. And you might be asking why. Well, simply, all strategies fail. Every single strategy fails, mine included. When is traded in the wrong condition?
Think about trading like a video game such as League of Legends, Overwatch. The markets are kind of like the meta. It's always constantly changing and shifting. And the meta is always constantly changing and shifting. If I'm trying to take continuation breakouts within a trending condition, I'm going to always make money. I'm just going to keep on buying at highs and I'm going to make more and more money. As soon as I try to take continuations within a range where I try to buy into highs here, well, I'm just going to get stopped out and [expletive] by the market.
And so, your ability to consistently make money trading isn't based off how good your strategy is, but how well you apply it to the right condition. It's like I'm trying to pick Rengar in a tank meta against a bunch of brawlers and tanks. It's just not going to work. The strategy I'm using will be countered by the market or, you know, by a champion.
And so, trading is all about adapting to the meta, adapting to the market condition because no strategy will ever make you profitable, but you make the strategy profitable by applying it to the right condition. So, your skill, your discretion to be able to adapt correctly to whatever the condition is, that is the edge that you have in trading.
And this is simply because all the patterns in trading have been automated away. There is no purely mechanical system that will make you profitable that you can just copy and paste and turn your brain off, go [expletive] mode. I really wish I hate using my brain, but unfortunately that just isn't the case.
But if a mechanical strategy doesn't make traders profitable, you know, people make money trading. How does that work? How are they still profitable? But yet still traders have a consistent edge. They consistently make money trading. How do they do that?
Most people think it's some pattern that works, but if it did, you would just be able to code it, automate it, and make money that way. Or it's that the trading strategy, the system, only works when you apply it to the right conditions. You use discretion to identify the condition and apply the strategy in the right way, and that's what actually makes it work.
And the thing is, every profitable concept—ICT, smart money, order flow, supply, demand—it is just a lens to view price action. It gives you a perspective to view the markets and how they move. What you use doesn't really [expletive] matter; it's how you use it.
And so, the only thing that truly matters is your intuition and your discretion to apply it the correctly. Every single problem you have in trading is just a skill issue because you are the edge. You're the thing that makes the strategy work.
And so then, how do we actually become a profitable trader? If it's not mechanical, if it's if we can't copy and paste it, how do we actually learn, you know, build an edge and and become profitable? Well, this is through something called implicit learning.
If you wanted to learn the skill of riding a bike, would you read a [expletive] book about it? Would you watch YouTube videos about it? Or would you get on the bike and [expletive] pedal? The former is explicit learning. Watching videos, reading books, you're trying to learn through external stimulus. When you actually get on the bike and ride it, that is internal learning. That is implicit learning. And we want to focus on that.
The learning is in the doing. The learning is in taking trades, journaling, reflecting, reviewing those trades, and then iterating and improving. So, we want to use a trading journal. We want to take a [expletive] ton of trades. And if we do those two things, we can massively enhance the learning process.
And the whole point of having a trading journal is to be able to collect a bunch of data to be able to train your intuition, your discretion. Kind of like your a biological algorithm, like you know, quantitative trading. Instead of using an algo to to place trades, you're training your brain based off of journal data and a bunch of experience. Because remember, you you right there are the greatest strategy of all. And the only thing that matters is your skill in trading, not your strategy. A strategy won't make you profitable long term, but you make the strategy profitable by applying it the right way over time.
And the thing is, thinking that you'll find a strategy that will make you profitable is extremely fragile. Thinking that finding a pattern that you can just copy and paste and follow will make you money just doesn't work because we want to be doing things that are anti-fragile.
The difference between something that is fragile and something that is antifragile is that anti fragile things get better when things go wrong where fragile things get worse when things go wrong. For example, a strategy is fragile because if you take a couple losses or go through a losing streak, that means the strategy doesn't work because it's fixed. It's rigid. It doesn't evolve or change over time.
If you focus on your skill, that is anti fragile. Cuz if you go through a couple losses or losing streak, well, great. That's more data points to learn from. You can journal those trades, see what didn't work or what are the commonalities between the losses so you can avoid doing that in the future. You actually gain learning. You improve from the bad thing happening. And so that's antifragile. You get better regardless of what happened.
But you might be wondering, "Okay, Tom, shut the [expletive] up. Stop yapping. How do I actually build an edge?"
Well, we'll go through a pretty easy way to get into edging. The easiest way is just to pick one simple strategy. Use a fixed one:1 riskreward. Leave the ego behind. Yes, it kind of looks bad. It kind of looks ugly, but if you truly want to become profitable, you will use a fixed one to1 ris. We need to [expletive] max in this phase.
We also want to set and forget. No managing your trades, your stop losses, your takeprofits. Just set set the trade and then walk away because this phase is all about collecting data so we can learn from it. It doesn't really matter what strategy you use because it's all just a perspective to view price action in. But you just need to stick to it, keep it simple, and then use a fixed one reward set and forget so you can remove a lot of the complexity and variables that you don't need to track. Okay, we're going to be strategically [expletive] maxing in this phase.
You then want to take 100 trades with that simple strategy. And no, you don't want to [expletive] back test that [expletive] because back testing and live trading are completely different. Most people have good analysis. They just are [expletive] at live trading cuz being a good analyst and being a good trader are two completely different things.
We want the practice and the data collection to be as close to the real thing as possible. So for test, not on a demo account, but on a small prop account. Could be a cheap 50k futures account or a small forex 10k account, but just have some sort of risk there so the data is actually useful.
Whilst we're taking those trades, here comes the tedious part. You're not going to want to [expletive] do this. This is boring. I [expletive] hate this [expletive]. But if you truly want to make money trading, if you want to have that freedom, you'll be willing to pay the cost.
Most people don't get what they want in life. Not because, you know, they don't know what to do, but simply because they aren't willing to pay the cost. They're not willing to brace boredom, tedious pain of doing the right things.
So, we're going to be journaling every single trade in as much detail as possible, tracking every single little variable. Track every single little reason for taking that trade. Because having an edge in trading is all just about answering the small little questions like: when should I trade? What condition should I trade in? What condition does my strategy work in? What sort of entry model do I want to use? And having a proper journal makes it easy to answer those questions.
And so, for example, this is my journal here. I track a lot of different confluences. And let's say I'm trying to decide, "Okay, should I be looking for a reversal 20 minutes into the hour or 30 minutes?" I can look here, filter by 20-minute reversals, and see that I have a 62.5% win rate. If I then just filter by 30 minute reversals, I can see here I have around an 87% win rate. So, if I'm trying to decide when I should take reversals into the hour, it is very easy to answer that question when you have good data backing it up.
And so, building an edge in trading is all just about understanding the probabilities, the data behind these little questions, knowing when to trade, what to look for, what condition to be looking for your strategy in. And if you just consistently do this, track every single little reason for taking a trade. And you also actually take pictures of those trades so you can review in the future.
Look for commonalities between the winners, similarities between losses, do more multiple works, less what doesn't. It becomes really easy to understand your edge and make profitable decisions. I have so much high quality data to train my intuition, my little nogginoff.
And so, once you've taken those trades, you've journaled them, there are going to be three possible outcomes. And it does not matter which one of these outcomes we hit because, regardless, we're going to be able to build a profitable strategy from it.
For example, let's say you take 100 trades and 60 of them lose. Sucks to suck, but that's actually an amazing opportunity to improve. The best learnings I ever had in trading were from massive periods of losing.
For example, my current strategy is based off me sucking at continuations. I really did not have a great win rate trading continuations, and I found that I had a big drop off in my win rate when I was looking for reversals in the second half of the hour. I then thought, "Okay, if I'm taking continuations in the second half of the hour and it's negatively impacting my win rate, well then if I do the opposite of that, that should be an increase in my win rate."
And so, I went through and analyzed my data, and I found that around 30 minutes into the hour, I have my highest win rate. I have around a 75% win rate on average simply because I discovered that there was a big decrease in my win rate from taking continuations around the second half. So, okay, what if I just do the opposite? Look at the data. I do the opposite, I have a big increase in my win rate.
And so, the easiest way to improve as a trader is just to isolate the worst confluences, the worst parts of your strategy to just then do the opposite. And so, if in the testing phase you go through a big losing streak, please continue journaling those trades. Stick to it even though you don't want to. It's painful journaling losses, but the worst periods in my trading, those big losing streaks, ended up being the most valuable learnings in my whole career.
We then have the second outcome. Okay, what if you finish around break even, have around a 50% win rate? Well, instead of trying to do the opposite to reverse engineer and flip our strategy, we actually want to analyze and see if there's little ways to iterate and improve.
You'll have around 50 wins, 50 losses, and we can see the commonalities between the wins. So, we can do more of what works. Or we can go through all those 50 trades and see, "Okay, what did they have in common so we can, you know, avoid that, do the opposite of that," similar to the first part of this as well. Or we can review our trades, review our screenshots, and see if we could have, you know, a better entry to improve our, you know, riskreward. There's lots of different ways to improve your strategy because you just need a small little edge.
And so, for example, the reason I wanted you to have a 1:1 riskreward as a target in this column here, I track the R multiple outcome. So, if I take a trade and it hits my takeprofit at around a 1.2 risk reward, I just put here a 1.2R, but I can actually track what was the maximum takeprofit that that trade would have hit.
And in this column here, I track the max favorable excursion. So, how far does this trade go in my favor in the next 30 minutes regardless of if I closed or not? And so, for example, in this trade here, the MF was a 22. So, it went to a max of 22 riskreward. This is my sell around here, stop above the high, and you see it went a lot further than my takeprofit.
And I can actually track that and see, you know, over time over my trades, what is the average risk reward that it hits? And so, because I'm tracking the max risk reward, well, maybe instead of targeting a 1:1 risk reward, I can target a 1 to 1.2. And so, I have a 20% boost in the size of my winning trades. And maybe that doesn't actually negatively affect my win rate. And so, that small little change will make me profitable even by taking the same trades with the same win rate.
Or I can have a look at my M AE which tracks my maximum adverse excursion because maybe I have [expletive] entries. I just need to be entering better. And so, this will track how much the trade goes against you before hitting your takeprofit. In this example here, it went around 70% to my stop loss around here. And so, if I'm consistently getting a big MAE on my winners, that is an opportunity for me to improve my entries. And if I get a better entry, I can increase my riskreward and increase the size of my winners while still having around the same sort of win rate.
And so, I can filter my journal, see what trades lead to losses, you know, such as this. I have around a 40% win rate with this confluence. If I do the opposite, I have around a 89% win rate with this confluence. So, I can win more, lose less. I can win bigger because I'm tracking my MF. I can get better entries because I'm tracking my M AE and I'm taking screenshots of my trades.
And so, those are the four ways I use to analyze, iterate, and improve my trading over time. And so, it's almost impossible to not build a profitable strategy.
And then for the third outcome, this is probably the easiest outcome, but you already end profitable. You have above a 50% win rate. And so, with that, you can just refine or keep your strategy the same. Or you can still do things that I previously talked about such as analyzing, iterating, making it even better.
But when you do this, you'll have some type of improvements, some learnings. You know, you'll learn to take a trade at a certain time or you need to take a trade in a certain condition and you have a couple different changes to make to your trading plan or your edge. And you can make those changes and then go back to doing the same thing. You can take another 100 trades. You could journal them, and then you have another three possible outcomes.
Even if it actually decreases your win rate, you know, you'll have a learning around. "Okay, maybe I shouldn't be trading in this condition. I I should be doing something different." And if you just keep going through this, you keep iterating and improving over time, you just keep on getting better and better and better. And this is exactly how I sustain above a 70% win rate because I know exactly what leads into a profitable trade. I've refined this over 6 years of trading.
And so, once you've done this, you built an edge that you know works that is based off data. The next part is actually how do we profit off that edge without blowing through even more accounts?
Because a lot of traders actually do become profitable. They have an edge in trading, but they actually never make any money simply because they don't understand the maths of winning in trading. They make trading 10 times harder than it needs to be because of one small mistake. And I did the exact same thing.
So, first off, you need to understand that trading is never about how much money you can make or even how big of returns you can get. Making more money in trading comes from having a big account, not from having a bigger profit percentage. Trading is all about how much you can make in relation to your draw down.
Unfortunately, we don't have unlimited capital. And so, we want to optimize for risk adjusted returns. For example, when you're trying to pass a proper challenge, it's a 50k futures account. You're not just trying to make 6% to pass the proper challenge. You also have to make that percentage whilst keeping within the 4% max draw down.
And so, most traders might be able to make 6%. But they can't do that whilst keeping within the 4% max draw down. And so, they'll blow that account and they won't make any money even though they might be profitful over time.
And so, risk management is a balancing act between trying to maximize our returns but also trying to minimize our draw down simply because the further we go into draw down, you know, especially on a personal account, the harder it is to get out.
For example, we have two traders with the same stats. One risks 60% per trade, wins 120%. The other risks 5% wins 10%. And they take 10 trades with the same win rate, the same risk reward, the same sequence. But the first trader with high risk ends up with 5K. The second trader with managed risk ends up with 12K. Even though they have the same win rate, risk reward simply because they're risk management.
This is because the problem is the DP you go into drawdown, the harder it is to get out. If I go through a 10% loss, I have to make 11% to get back. If I go through a 50% loss, I have to make around 100% to get back. If I go through a 75% loss, I have to make around 300%. So, we want to avoid going into draw down as much as possible. Especially if you want to have a high pass rate on prop firms, you need to minimize your draw down as much as possible.
And so, how do we do that? Well, risk management is all about managing four different variables. We have our win rate, our risk award, our position sizing, and our draw down. And these variables have relationships.
And so, for example, the higher your risk award, the lower your win rate. This is simply because you need price to travel a lot further in one direction, and you're a lot more likely to get stopped. The thing is markets don't move in one direction. There are pushes and pulls and you can very easily get stopped out before what price goes in your favor.
And so, most gurus online will tell you that, you know, if you want to be a profitable trader, you need to have a positive or high risk reward. But unfortunately, the math just doesn't work on that. And this is simply because the higher your riskreward, the lower your win rate, the lower your win rate, the higher your draw down because you're more likely to go through longer losing streaks because your win rate is directly tied into your draw down.
For example, we have a strategy here with a 90% win rate and a 0.7 risk reward. This has a expectancy or an edge or the size of the edge is 0.5R. And so, we have a average loss streak of 1.7.
If we have a look at a strategy that has a 30% win rate with a 4.1 risk reward, it has the same edge, same expectancy, but we have an average loss streak of 10. So, you're still profitful with this approach, but you'll go through a 10 losing streak. And so, you're more likely to go through bigger draw downs with higher risk reward and lower win rate strategies.
And so, most traders will tell you to target a 1 to2 risk award, a 1 to3 risk reward. That it's so much easier because you only need to win 30 40% of the time. Yes, true. But you're also going to lose 60 70% of the time. And this makes trading 10 times harder than it needs to be.
If you want to consistently make money trading over the long term without going bold, you want to be using a low riskreward, higher win rate system. It makes trading so much easier. Especially if you're trying to pass props.
And this is simply because the higher our win rate, the lower our max draw down. And if we're trying to minimize our draw down, we're trying to maximize our returns. We want to choose an edge a strategy that makes it easy to have low draw down.
And unfortunately, high-risisk reward strategies have a low win rate and that leads to big draw downs. Yes, it's a bit easier to be more profitable by having a bigger riskreward. But you're going to sacrifice consistency and minimizing your draw down.
And the truth is, most traders don't make money trading not because they're not profitable. It's simply because they're not consistent. They can't consistently make returns. They go through big draw downs and losing streak. That is the thing that holds them back. Not they're not profitable over time, but the variance of their strategy makes them blow counts and fail because variance is actually the trap that destroys most traders, not them being unprofitable. And it's actually something that you can choose. You actually get to decide how consistently you win.
So, variance is simply the gap between your best possible outcome and your worst possible outcome. Think of it as the consistency of your returns or how frequently your wins are compared to your losses.
For example, with that 90% win rate and 0.7R riskreward system, you can see here we have 20 different equity curves over 100 trades. The difference between the best equity curve and the worst equity curve is quite tight. There's only around a 1.3x difference and so our returns will be relatively stable. We won't go through big draw down periods because on average we'll have such a high win rate.
But if you choose a low rate system with a high risk reward, there's a massive difference between the best case scenario and the worst case scenario. You could lose money over 100 trades even with a profitable strategy. That is the reality of high risk lower systems. And there's a 4.8x difference between the best and the worst case scenario.
And so, the truth is, if you want to consistently make money trading, pass prop firms, have a high pass rate, you need to be win rate maxing. Risk reward doesn't [expletive] matter really as much as you think it does. It's all about the combination of your win rate and your risk reward to have, you know, expectancy in your favor.
But we want to favor a high win rate systems and low risk rewards simply because we're not trying to be the most profitable traders. We're trying to be the most consistent and have consistent returns. We want to limit our variance as much as possible. And the higher our win rate, the lower our variance.
And this is especially true for prop firms where you have pretty tight uh max draw down. On futures prop firms on a 50k account you have around 4% max draw down you have to make 6%. And so, with that 30% win rate system with around a three risk reward, if we're going to risk 1% per trade, we have a 53% chance of passing that account. In order to have a 70% pass rate, we need to risk 0.5%.
And so, in order to have a high pass rate on proper challenges, you need to risk a lot less on these low win rate high risk reward systems. And because you're risking a lot less, it's going to take a lot longer to pass. 33 trades on average to pass an account that would take around a month of trading.
And the thing is, the longer you spend on a prop firm evaluation, the more likely you are to blow that account in the funded phase because you care about it. You put so much time and energy and effort into it. We want to be passing quickly, easy, and getting payouts as quickly as possible.
And so, what if we actually went with a strategy with a high win rate around 80% and a average riskreward of 0.5? These two strategies have the same expectancy. they just barely have an edge. But with a high rate system, we have around a 97% pass rate with 1% risk.
And yes, this takes around, you know, 29 trades to pass, but we have such a high pass rate that it doesn't really matter. If we wanted to pass that account a lot quicker, we could actually risk 3% to pass that challenge.
And so, it's a lot easier to pass funded accounts simply by choosing the right type of edge because it doesn't really matter if you're trader. If you have the wrong type of edge, then you need to have really low position sizing. It takes a really long time to pass. you go through big losing streaks and that really, you know, negatively affects your psychology because in the trading industry there is a disease around targeting high-risisk rewards.
Most people online think or tell you that, you know, the bigger risk reward, the more money you're going to make, but it just makes you more likely to lose and go through big draw down periods. If you want to make trading so much easier, just let go of the ego and target a lower risk reward.
There's a reason why 90% of traders think that high risk reward is better because 90% of traders [expletive] suck and they [expletive] lose money. As soon as I changed my risk reward and targeted less, I made more.
And so, would you rather have a pass rate like this where you pass majority of your profit challenges or would you rather have a pass rate like this where you blow through the majority of your challenges? It's as simple as that. Because again, we're not just trying to hit that 6% profit target. We have to hit that 6% whilst keeping within that 4% profit target. That is the hard part of trading.
And so, you'll fix most of your psychological problems just by targeting a lower riskreward. You'll be able to have a high win rate and trading will feel a lot easier.
But the thing is, this isn't without its cost. The cost of high win rates, low restore trading is the pain of watching a winning trade go on without you. You have to get used to and comfortable with closing a trade in profit and then watching it go on to 5, 10, 15, 20 hour without you. That is the reality. You can't avoid pain in trading. But you do get to choose it.
And so, next we need to cover a specific relationship in risk management that has a massive effect on how much money you make on your personal accounts. And this is the relationship between your position sizing, your draw down, and your win rate.
For example, we have a high win rate system. Again, 80% win rate with a 0.87 risk reward. And we're comparing that to a 30% win rate system with a four risk reward. And with these two strategies, the goal is to keep them below a 20% max draw down.
And so again, with a higher win rate, that leads to lower draw down. And because we have that lower draw down, we can actually increase our position sizing. Because the bigger our position sizing, the bigger our max draw down, but because we have a lot more buffer, because we have a higher win rate, we can actually increase our position sizing a lot more.
So, the safe position size on the high win rate system is around 5.5%. We can see here that we stay under that max draw down where with a 30% win rate system, the safe position sizing is around 1%. And we still have a higher max draw down on this. And so, with that low win rate system, we need to have a lot lower of position sizing to stay within that max draw down here.
And this has a massive effect on how much money you can make. For example, with the high win rate system, the total return over 200 plus trades is around 43,000%. Simply because we're able to risk 5%. But on the low win rate system, our total return is only 200. So, a lot lower of a return simply because we have to have a lot lower position sizing to stay within that max draw down.
So, you can actually 10 20 100 times your risk adjusted returns just by going for a high win rate with a lower risk reward which will allow you to have bigger position sizing. You'll compound quicker. You'll be able to take more trades because low risk reward trades happen more frequently than high reward trades and trading will just be a lot easier especially on a personal account.
And so, hopefully it is now a no-brainer what type of system, what type of edge you should be building. If you want to make trading easy, stress-free, and you want to make a 100 times the risk adjusted returns, you want to go for a high win rate, low risk reward system.
And so, most traders are unknowingly playing the game on hard mode because the higher your risk reward, the lower your win rate. The lower your win rate, the higher variance. The higher variance, the higher the difficulty. You need to risk less so you can stay within that max draw down. All these sort of things, and you make trading so much harder than it needs to be.
Again, trading is very similar to any other video game. It's a lot easier to succeed with something that is easy. It's easier to climb in League with Annie than Azir. It's easier to drive a car with automatic compared to manual. And so, we're not trying to have the best or most perfect optimal strategy. We're trying to have the easiest strategy that we can consistently execute over time and you make it very easy to adapt to market conditions.
And so, a low riskreward system, focusing on win rate maxing makes it so much easier. So, just [expletive] drop the ego and play on easy mode. It's so much mentally easier.
And so, if you just focus on doing that, building an edge, using a low risk reward, high win rate system, I guarantee you'll be profitable within the next six months.
But what if you get to the point where you know what you should be doing, but for some reason you just still can't do it? Well, this is where psychology comes in.
Good psychology in trading is simply about having the ability to be able to consistently execute a proven edge under uncertainty. Good psychology in trading isn't about feeling calm or not feeling anxious or fear cuz I feel those things every single day. I felt it earlier this morning when I was trading. Trading isn't about not feeling these emotions. It's about how you react to those emotions in the moment.
And you will fix 90% of your psychological problems by doing the previous two things that we talked about. If you have a clear system that you know works that is backed by data, a lot of the problems you're currently facing will be fixed because with every trade that you take, there will be outcome uncertainty. You don't know if a trade is going to win. It could be the best trade in the world, but it's still going to be a game of probabilities. It still could lose.
But if you are unclear with your process, you don't have a clear step-by-step process, you don't have any data that's backing up your decision-m, you don't know why you should be doing certain things cuz you don't journal your trades. Instead of just having that uncertainty around the outcome, you also have uncertainty around the process. So, what was one times uncertainty is now two times. And so now you have double the uncertainty, you have double the stress and you make trading two times harder.
So, the easiest way to improve your psychology is to do the [expletive] work, to be clear on your trading plan, your trading journal. Do what we previously talked about. Now fix most your psychological problems because your lack of discipline in trading is actually a lack of clarity. You don't clearly know what you should be doing.
And the second part to fix most of your psychological problems is not about changing your emotions. is actually about changing how you react to those emotions. So, creating a gap between what you feel and what you do.
And again, the reason you don't stick to your plan is because you don't clearly know what your [expletive] plan is. If you just have a vague trading plan where you know you want to trade with a trend and I'm going to look for continuations, that's very vague and unclear. Like what the [expletive] does that actually mean?
And the reason you can't avoid taking bad trades is because you haven't actually defined what bad mean. The more clearly you can do that, the easier it will be to avoid it.
And the best traders are not the most disciplined. They have simply designed a system where the right action requires almost no willpower. It is so obvious what the right decision is in the moment that they just do it without thinking. The best traders don't optimize for having the most discipline. They optimize for making the decision-making in the easiest possible.
And then the second reason why you don't follow your trading plan is simply because you don't know why you should be following it. Cuz if you think back in your life, "Okay, when have I broken rules or just not followed rules?" Well, I follow rules that I have no [expletive] idea why I should be doing that. Those dumbass rules that you had in school. You probably broke them because you didn't even understand why to [expletive] follow them in the first place.
And so, if you don't track your trades, you don't journal what you're doing, you don't know why you should be using 1% risk or why you should be looking for a certain entry model or condition because you don't have any data to back that up, you're not going to [expletive] follow it.
We want to make the right decisions as easy and obvious as possible. And we want to make the bad decisions as obvious as putting a hand on a hot stove. Obviously, we're not going to do that. And so, if you can make the pain of breaking a plan bigger than the pain of losing a trade, you will stick to it consistently and make money.
And so, once you build a profitable edge, you validate it with data and then you reduce risk to tolerable levels so you can consistently execute it. Well then, you know psychology becomes a lot easier and you find it a lot easier to manage your emotions as well.
Because the truth is, if you don't do what we previously talked about, you deserve to have [expletive] psychology because the easiest way to have confidence is to have evidence that you are who you say you are. That backs up your belief in yourself. And the easiest way to do that is to have a [expletive] ton of data that shows me exactly if I just do this, this, and this at this time in this condition, I will make money. And so, I just have to follow that and trading becomes so much easier.
We just want to make the right decision as easy as possible. People don't do this. They have five different strategies, trading it five different times for hours on end, and they think, "Okay, why is this so hard? Why does it take so much effort and I still fail?" We want to make it easy, remove as many options as possible, make decisions that remove future decisions, and we want to kill all ambiguity. If you do that, you'll fix most of your psychological issues without locking in or having more discipline.
And so, if you do everything I talked about, those three parts of the system, there's no reason why you would not make money trading. If you use technical analysis to build an edge so you can avoid losing too often, you have the right risk management so you can avoid losing too big, going into too much draw down, and you have the right psychology so you actually execute what you know works, it is impossible to fail.
We're not trying to be the most profitable optimal trader. We're just trying to make trading as easy as possible so we can consistently execute a small edge that we know works and make money off that.
And so, for me, I just define one profit trade using data. I only look for reversals in rangebound conditions and then just manage risk to profit off that over time. I target around a 1:1 riskreward. I have around a 77% win rate and that makes it a lot easier to consistently manage my emotions as I lose less and I have a more stable equity curve and trading becomes a lot less stressful and enjoyable.
And so, I've yapped a lot. But you need to remember this: nothing changes if nothing changes. If you don't take action on what I've told you, you've just wasted your time. No learning has occurred if there's no change in your behavior.