How to be consistently profitable... but I bet you won't do it

YES!! you CAN be consistently profitable and guess what? In the end you will find it has very little to do with the market of your choice.

I am starting what is likely to be my last thread here on FF...

In the past I have commented on many things in relation to our business...trading. Most of what is focused on (in FF) is the research and development of systems, math probabilities, and technical indicators to assist in narrowing the odds of losing. I have yet to see anyone here focus on consistent profitability. Here is what I mean:

Take a look at the forum board you will see various "systems", and "indicators" and math calculations dealing with formulaic calculations of odds and probabilities. Game theory,lines segments, plane geometry, Newtonian physics, and yes interplanetary movements and lunar phases.

Yet none of them...NONE of them discuss the very simple steps of gaining consist profits in your trading. Oh yes I gather that is the whole idea and yes, I understand that all the above stated theories are an attempt (however misled) to create some kind of income stream that is ultimately reproducible and steady. This process is not that difficult but it IS time consuming and perhaps that is why most will not even entertain the idea.

In the next few posts I will attempt to give you an outline of these steps. I will outline how you can progress (as quickly or slowly as you chose) toward your goal of becoming a winning trader. In so doing I can all but guarantee that one of these steps will stop you in your tracks and you will either refuse or neglect to do it. So I warn you now...if you do NOT do each and everyone of these steps to its completion you will lengthen your time learning AND you will shorten the life of your trading capital.

Are you with me?

Yes I am.

In DonPato

Im intrigued

Step 1: STOP the bleeding!!

If you are already consistently profitable you are probably NOT reading this thread. However if you are NOT consistently profitable AND IF you are currently live trading STOP IT!! Yes you heard me...stop your live trading immediately. I don't care how profitable your current trade is...take your profit and be glad...if your current trade is losing close it NOW!.

Why would I say this? If the answer to this question is not obvious let me be perfectly clear. If you are NOT consistently profitable then you are on a path to lose all your capital. PERIOD! If you cannot answer the simplest question about your trading activities then you have no business putting your (or anyone else's) capital at risk until are ready.

So if you account balance is greater now than when it started...Congratulations!! STOP LIVE TRADING!!
If your account balance is less now than when it started...STOP LIVE TRADING!!

Again this may seem obvious to you but it isn't for many of you out there...so let me make this clear. If you cannot at a minimum answer ALL the following questions NOW...then you are probably NOT consistently profitable:

1. I absolutely know what my market beliefs are, and have them written down in my trading plan
2. I have a WRITTEN and TESTED trading plan that I utilize and follow in each and every trade
3. I know what conditions must exist for me to take any trading action. (Enter, exit, move stops, adjust position, etc.)
4. I know on average how long my trades usually last. Any large deviation from that time frame usually goes in my favor.
5. I know on average how far the market may move against me before eventually moving my direction
6. I utilize my market beliefs in my written trading plan and on every trade.
7. I know how I react when price moves against me (whether my position is positive or negative)
8. I use my own reactions to my advantage when I sense them
9. I have a WRITTEN and tested risk management plan that I use on each and every trade
10. I know exactly what my win/loss ratio is and what my expectancy of profit should produce on each and every trade.
11. I have a WRITTEN professional overall business plan that I follow each and every day.
12. I have a WRITTEN plan for disaster recovery that I can utilize if an emergency strikes RIGHT NOW.

There are many more points that I can put up here but I think you are getting the idea. If you can't answer ALL of the above questions or have never thought of them before then you should STOP LIVE TRADING NOW and don't start again until you can. Put this step down in the category of Capital preservation and risk management.

Learn to Walk before you Run:

Perhaps you are a trader with many years experience. Perhaps you are just beginning your journey. Perhaps you are somewhere in between. Wherever you find yourself, stop!! Go back to the basics. Review them again. Trading is complicated enough without us trying to make it even more complicated. So review the basics, and don't just go through them like your cramming for a math exam...LEARN them.

Specifically learn these 3 basic fundamentals that make all markets work. (1) Time, (2) Order flow/Volume, (3) Price. Many of us jump straight into price and don't even look at the other two fundamental market principles. It doesn't matter to me how you trade or what you use to trade with. What matters at this point is do you understand how each of these fundamentals creates price movement? If you don't, go back and learn (or re-lean) them. Before you get into the esoterics of global economics or elliot wave theory, or fibonacci levels, or "support/resistance", lean about how each of these elements will have an effect on price, and when you do, try to keep in the back of your mind how you might use that information to your advantage.

Here are a few things to consider: (1) If you see your favorite entry set up 5 min prior to an NFP announcement do you think TIME might be a relevant factor in making your decision? (2) Do you know how orderflow/volume effects price and consequently do you know what effect that might have on your favorite indicator(s)? (3) If price is moving in your favor, and starts to pull back do you know (with any degree of certainty) that there is more coming - if your patient enough?

A review of these basics may cause you to rethink your current methodology and perhaps that is a good thing!!

It's a good checklist.
The idea should be, not to stop trading but do the checklist every day before taking trades.
I have already written down most everything in your list.
If we are trading a system, a method that is tested then only thing matter is if we follow the plan. And stay extremely calm and relax "in the zone "

How to be consistently profitable...... But I bet you won't do it. Things that are not done list,

1. You are consistently profitable if your trading strategy has a positive edge. To determine that you objectively quantify it then back test followed by some forward test to prevent curve fitted results,

2. Following point1, raise your expectation where you migrate from the subjective world to become objective in your thinking process. Measure your strategy rules to quantify each one of them. There will be areas that require subjective decision be aware of them, reduce that to a minimum.

3. You develop a mindset where risk management is many times more important than your spectacular nice looking reward risk ratio and/or win rate. You factor into your strategy this possibility of risk of ruin in the design.

4. Following point 3 , stop loss management is the number one knowledge and skill to acquire. Study in a quantified research approach to find out the behavioural nature of the selected assets that you trade, the stop loss pips required relevant to current volatility and time of day. If you can consistently avoid price hit your SL you have learnt the fundamental knowledge and skill to be consistently profitable.

5. Following point4 develop the attitude to focus appreciation how well your trades have performed based on drawdown measured from entry to SL. Review each trade with respect to their individual risk exposure. Instead of mostly be enchanted by the spectacular reward risk and/or win rate ratio. Consistent profitability comes from this one main aspect of trading.

6. Focus your analysis and trading strategy on potential trade opportunities. The common mistake is to analyse the entire market shown on the chart. Be interested only in trade opportunities.... be very interested in this narrow segment in absolute detail, be blind to the rest of the chart. A skill to acquire.

7. Be a one trick pony. Instead of jack of all trades master of none whose purpose is to impress the audience.
"I fear not the man who has practiced 10,000 kicks, I fear the man who has practiced one kick 10,000 times."..... Bruce Lee

Know that if you trade long and short in the same prevailing market, you are a master....... at everything.

8. If you have done up to point7 and still have issues to perform in live market, you are,
1. Trading too large lot size, or
2. You have not done the above points correctly and completely, or
3. Other life issues that may or may not be related to trading.

9. Reduce the screen staring time in your daily trading session. The longer the hours the more the fatigue the lesser chance for consistency, the lesser possibility to maintain trading lifestyle long term vv.

10. Do not allow peer pressure or crowd mindset to hijack your logical thinking. Learn to identify subjective opinions and assumptions, there are plenty. Thinking discipline is a must have requirement for consistent profitability. Learn to acquire the mental toughness that doesn't require nor expect any outside validation. Other people's reality is never yours.

Things not done list remains not done.

Nothing stops a consistently profitable trader from continuous learning and improvement. Past performance, they say, does not guarantee future success. Successful billionaires rub minds with their peers. Nevertheless, your point that capital protection is the #1 goal is critical. It comes before growing your trading account.

Stay safe, trade safe.

KP

Awesome post! This really made me think. Its funny that I had taken myself off of live trading for the last three weeks to "get refocused" after completely getting away from some key fundamentals that I've known for some time now when I came across this post. I completely agree that knowing your market beliefs as well as testing and measuring everything is of utmost importance and sometimes taking a step back is the best thing one can do from the perspective of mindset. Thanks again

Start a Written Journal:
Ah!! I can already see the eyes rolling and the groans from my imaginary audience. I can hear the whining, "How will THIS help me be more consistent?"...now I hear the excuses, "Well, I'm not really much of a writer...I can't really express myself that way...I have never kept a journal..."

This is where I will ask you straight out. Do you WANT to be consistently profitable? Yes or No? Name ONE person who as made any kind of meaningful discovery, invention, or advancement who has NOT kept a journal of their progress, I challenge you! A written journal will allow you to do the following on your journey to consistent profits:.

1. Understand your thinking process now and how it has changed over the past x period of time
2. Evaluate your results using these changes in your thought process
3. Start documenting how your emotions are: (a) benefiting or (b) harming your progress.
4. Start eliminating what clearly DOESN'T work thereby leaving what has yet to prove its effectiveness
5. Fine tuning what is actually working to maximize your progress

Again these are just a few of the benefits but I'm sure you understand how essential a trading journal is to your progress. I want to also express this purpose in keeping a journal. This is NOT some "touchy/feely" this is how I feel about trading. (Although documenting emotions - especially the destructive ones can be invaluable). In addition this is not some "fake it until you make it" positive affirmations, feel good-work good, positive thoughts lead to positive outcomes, irrelevant nonsense.

This is a logical and introspective critique of how you THINK and what actions you take based on those thoughts. It is also recording why you may NOT have followed your trading theory when taking actions, and then documenting the results of those actions...again some may actually be helpful and if they are, you may want to modify your plan to include them.

Bottom line is this, you will NEVER know unless you WRITE IT DOWN. Once you start a journal, you should be writing down every action you take and why...examining your thoughts at THAT moment in time and what emotions (if any) have influenced your decisions/actions. Let me try to explain why from a personal experience.

I used to trade with a "system" much like I imagine many of you do now. However, as soon as an entry triggered, price would move against my entry almost immediately and drive right for my stop loss. (I'm sure many of you know how this feels). Its like the market could "see" my stop and wouldn't move my direction until I was out of the position at a loss...then the market would move back in my original direction and go right to where I would've had my limit. (I have affectionately called this the "FU stop".)

It got to the point where I would start messing with my stop putting it further and further away to avoid this stop out, and as soon as I entered I would have beads of sweat on my forehead waiting for the eventual stop out...it wasn't until I started examining this and writing my actions in a journal that I discovered that I was entering too soon!...I started tracking this issue and documenting the conditions surrounding my entry signal and discovered that this little "FU stop" move was consistent and allowed me to watch for it...expect it...and THEN enter at the bottom of that stop hunt move...it not only made my entry more consistent, it also allowed me to take a greater portion of profit AND tighten the stop I was using making my risk-reward ratio far better than it had been.

The point here is I would never have discovered this (or it may have taken me YEARS) to find out that I was simply entering too soon, if my trading coach hadn't insisted on not only keeping a journal but also reviewing it on every trade. All of the sudden my personal behavior patterns were right there in black and white and with that knowledge I could modify my actions to my benefit.

So tell me...in this kind of example...what does that have to do with the market or price movements? I analyzed and change MY behavior, not the markets. I found out that my own actions were resulting in my frustration and creating an emotional cascade that deteriorated my account balance. It had nothing to do with the market, or my broker, or the system or any aspect of trading...it was all ME...

That was only one of literally hundreds of behavioral actions that created a huge inconsistency in my trading. My profits were as random as any game of chance and worse...this casino was of my own making.

So learn from your OWN behavior patterns...understand what those patterns are, and more importantly, learn what causes them. Just doing this, keeping a journal, will improve your accuracy by a factor unimaginable, no matter what methods you employ to take action in the markets.

So stop being a whining!! Get your pen and paper out and start writing in your journal...TODAY!!

You beat me to the punch!! That was going to be in the final portion of my presentation here...once you have employed all the steps I intend to lay out here, you can continue with them and create a virtuous cycle that leads to better and better outcomes. In addition if something is wrong you will be able to go back and pin point the issue, and correct or modify any behavior that is causing the undesirable outcomes.

You have a good thread mate. But that aspect of your post I quoted can be misleading; giving a wrong impression that it's only failures who can visit or read your thread or even, by extension, be members of FF.

Stay safe, trade safe.

KP

Quoting DonPato

Disliked

{quote} You beat me to the punch!! That was going to be in the final portion of my presentation here...once you have employed all the steps I intend to lay out here, you can continue with them and create a virtuous cycle that leads to better and better outcomes. In addition if something is wrong you will be able to go back and pin point the issue, and correct or modify any behavior that is causing the undesirable outcomes.

Ignored

Actually what is written here has been said in hundreds of trading book, especially the psychological ones.

Nothing really new. The conclusion is to be disciplined at what ever you do and success will follow its way or not.

The majority of retail traders struggle to find out how to be consistently profitable in Forex. To be successful first of a trader must create a trading strategy, trading schedule and risk management. Second, a trader must follow his strategy and also follow the rules of the trading market.

I'm afraid I couldn't disagree with you more. While it is true that yes many retail traders struggle to be consistent but not necessarily because of the reasons you have stated:
While this may be a necessary step it is NOT necessarily the reason a trader has not achieved consistency. In fact this very forum is good proof of that very thing. There are several systems here on FF many of them extremely well thought out and accurate. So why isn't everyone who uses these systems rich wealthy? Or even consistently profitable? is this the reason?
I sincerely doubt it...but admittedly I cannot speak for everyone. If this is so then, why do traders ignor what is (presumably) a winning system if they just follow it? Can you really count that to lack of discipline?

I'm afraid I disagree. It has more to do with most trader lack of or misunderstanding of the principles the methodology or system is built on. Admittedly the designer probably had a very clear idea of what he/she was trying to accomplish but not anyone else. This is why I always advise people to design their own methodology based on their own beliefs about the market.

Each of us has our own unique view of the world and therefore the markets. These views create different beliefs, which then express themselves in each person uniquely. My method won't work for you...and your method won't work for me. It just IS that way.

But how will anyone know his/her own unique view or belief if they don't take the time to explore those beliefs and make them concrete, just as any of your deep felt beliefs are concretely anchored in your psyche. And how will you do that unless you get rid of all the "noise" pulling you in a thousand different directions all at the same time...? Answer...you can't!! You must explore each element one at a time and then add in new elements as you master the ones you are studying...just like a master juggler, you cannot start with 15 balls...you start with 2, or 3, and master that FIRST...

Each of the things you mentioned above must be fully explored and mastered one at a time, THEN combined to form your unique methodology.

1. A trading strategy - some take years to develop this and it must include your belief of how the market works
2. A trading schedule - here again is the element of TIME and is very important. It is more than just setting working hours.
3. Risk management - this is sometimes just as challenging as creating a cogent trading strategy. It absolutely MUST go beyond, position sizing and stop placement.

Again none of these things can be taken for granted and you will never even know where to start if you don't start doing some of the above things I've already mentioned...

Listen up, anyone who stumbles onto this thread. DonPato is the man, he knows his stuff. Be a winner - listen to this man.

AH!! now your just making me blush!! Thank you for your kindness

I humbly disagree. Systems posted on forum are too simple that lack details in execution. When other traders use the system they find themselves without answers how to proceed in actual live market. So no they are not well thought out enough. That explains for why systems posted on forum are not used in toto to enrich members.

People do robustly test systems that the creator claim are profitable. They pose questions to the creator to clarify any misunderstanding and instances of gap of information. However, the answers provided come short of the existing problem or the creator avoids the question completely. In most cases, the followers don't call this out for fear of annoying the creator. Many instances when such questions are raised these posters are conveniently accused of being naysayers or wanting to be spoon-fed then eventually put on ignore. Many believe how well the system perform depends on the traders experience and skill - the trader is the hg mantra. The truth is the systems lack details that address completely as much of the market permutations. I daresay none of the threads reach this level. People soon realise it then ignore the systems section. Or take whatever knowledge that they identify to expand their own.

Market exist in a wide spectrum of permutations.
Simple systems posted on FF cannot accommodate this complexity, it falls way short. It takes objective quantification testing to discover this. Very few people go to this level of awareness and understanding. Many due to ignorance and many due to lack of ability and resource to find out. Result is the general blanket belief that it can't be done. Such comments reflect their own inept. This is the real state of this forum in denial. Fact is it can be done, however, it requires time, brain, effort, commitment and investment to fund the research.

A simple example, if I showed you a simple clear objective way how to win at roulette, say bet red when the wheel spins 10 black. There is no misunderstanding. Other people play this out at the casino found this to fail. If it were to return net positive hence winning system, people will play it exactly with no emotions other than how fast they can enrich themselves, greed.

No one armed with a clear objective winning system will mess it up with money management or develop psychology issues of patience, discipline or fear. Money naturally ensures that - we are at our best. Both become relevant when the systems fall short. And yes they all do.

If you're not already consistantly profitable dont even look under H1 TF. Weekly/daily setup, H4/H1 entry. Guarantee you'll see huge improvement. Price is fractal once you can trade the HTF consistently then you can go to the lower tf's and look for those same setups trading the same direction as HTF trend. Also doing it that way builds a lot of patience and discipline.