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

Nice thread. Surely very advantageous for beginners . Great effort.

Your post is excellent sir, thank you! I would call attention to your conclusion stated very clearly here. Especially this last sentence...all "systems" fall short. And therein lies the rub. No system is "perfect" just as no one is perfect. Systems are all designed and executed by people no matter how objective they try to be. The people participating in their various ways are what the larger market (any market) consists of. Systems, AI, Formulas cannot accurately predict human behavior much less "human herd" behavior. At least not accurately enough to be more than chance...gambling at best

If this is how one wishes to risk their capital there are far more "fair" games of chance available in any casino.

The idea of emotions, greed, fear, and everything in between are what make this business so difficult. And it is THIS that I have aimed this thread. There is only ONE person you need control and/or analyze. Yourself. All other analysis is superfluous and I dare say useless. Yes you heard that correctly. ALL other analysis is useless. Analyzing the market will do you nothing until you know yourself so well you know how YOU react. And if you KNOW you will react a certain way...(which by the way you DO know this because you've been keeping track of it in a journal)...then you can take actions to preempt your known reaction to your benefit.

Here is yet another personal example from this morning's activities in e-mini pre-market. Today before the market opened, I was monitoring a price activity typical of pre-market: a range. But this range had a spread of 250 pts. Such has been the volatility of late. I was into a position and survived the typical attack on my stop, but now price was moving my direction and still had a ways to go to the limit order. AND...price begins to stall, forming a range within a range. Again these are typical and not unexpected, but what was unexpected, was I was sitting on a week's profit already! I got so lost in "analyzing" the market order flow that I didn't even realize the HUGE volatility present. So here are the choices...hold for more (and expect a break out), move my stop in closer (and be willing to accept less than what I had now), or just take what I had and do something else FOR THE REST OF THE WEEK.

I did the later, and here's why. I know myself well enough to know that I tend to move my stop in too close when the market starts it little "stall and stop hunt" game. This eventually leads to a break in BOTH directions screwing everyone, and me along with them. I then become frustrated by this and start to revenge trade and lose my focus and even more money. AND...what was once a week's worth of profit on a single trade, turns into a devastating loss. I know this because I know myself. And while it might be easy to say (now in retrospect) that holding for just another minute or two would've made a big difference, I know that it most likely wouldn't work out that way. In fact I know that in 70+% of the times I've documented this I let a profit turn into a loss...why take that risk?

This has NOTHING to do with the market! It is my own personal demon that I have identified and recognize when it rears its ugly head. And I now know that the probability for consistent profit isn't in the market, it is in my ability to just reach over, close the trade, and look at it again next week....Done. Profit booked, mission accomplished, and absolutely NO reason to risk any further funds today, tomorrow or even the rest of the week.

So tell me...how does one measure THAT kind of behavior? Does that show up on someone's RSI? or (insert your favorite indicator here)..? Is this what is spoken of as "discipline"? Or is it just a good decision made from a body of data, that leads to a logical conclusion to act in one's own best interest?

Start Gathering Data:
In order to do this you are going to need hard data from your trading activities. You will need to be able to manipulate this data by calculating various different data points. This is going to require that you learn, or brush up on your spread sheet skills, or (if you one of the lucky ones) Data base skills. As I am not a programmer, I simply use a spread sheet. Of course the data you collect will be entirely up to you depending what you see as your objectives. However, now that you are keeping a journal of your behavior and thinking process, you will now also have a pretty good idea of what kind of information to need to look at and will begin a very long slog with your computer...sorry! If there was another way to do this I would let you know but my intelligence is limited, and I cannot think of any other way. Here are some of the data points I track to get you started...but there are certainly many more:

1. Time in trade
2. Number of points (pips, cents, ticks) price moves against me AFTER I enter. Including any counter move after price starts moving my direction. This helps me find my stop placement
3. Number of points (pips, cents, ticks) price continued moving my direction AFTER I closed the trade. This helps me find my limit placement
4. of course Win:Loss ratio, and Risk:Reward ratio
5. Also Conditions actually effecting the market during the trade (ranging, trending, volatile, choppy, etc). This helps me understand what conditions are most conducive to my trading activities.
6. Of course, Profit/Loss, both net and gross (yes that's right, you should calculate your trading costs)
7. I also track what happens (P/L, etc) when I "over trade"...in other words, once I've made my daily or weekly goal...should I keep trading or stop? I've found out I should just stop, but you may find differently.
8. How many times (in a row) should I take a loss before I just stop trading?

I'm sure you can think of more, but there is one thing that is clear. You must have a good sampling of your trading activities...I always tell my students, minimum of 100 trades. You cannot draw any conclusions or make any decisions without at least that much data to document the actual outcomes of your trades. 100 trades MINIMUM!

Why? This exercise forces you to do several things with your trading while you are recording the data...not the least of these is to try and trade the same way each and every time to keep your data integrity. If you can't do that for at least 100 trades, how on earth are you going to do it as a business? This, together with your trading journal documenting your thinking process, will give you 100 outcomes to evaluate if your current methodology really works, and more importantly if it really works FOR YOU. Be prepared to question EVERYTHING you "know" about the markets and your trading beliefs.

This is the longest and hardest part of forming your trading strategy and methodology...trading it for 100 trades, documenting 300 trading decisions (one for entry, one for stop, one for exit...each is a decision). Keeping your date intact and studying not only your method, but yourself. I'm willing to bet that when you are done, you will find many things that don't work well, and some things that actually work better than you anticipated.

This brings me to a famous quote from Dennis Gartman: "Do more of that which succeeds, and less of that which does not." Get rid of anything that does not help you trade well, and keep/add those things that do. All of the sudden you will find yourself with a very lean trading belief and methodology to go along with it. This will be your starting point...

Adjust, clean house, and start again!! Yes another 100 trades...rinse repeat. By the time you have done this 5-6 times you have a very good idea of what YOU believe about the markets and how YOU can use that information to your advantage. In addition you will now also have an extremely good idea of how YOU react to just about every market condition out there...and again...because you've documented those reactions...AND now how solid data to show the results, you now have the basis for the next step in this process...which I will address tomorrow (time permitting).

Just let me clear up something that I hear many times...This journal and spreadsheet data is NOT taken from your past trading activities...where you were floundering around with no real clear direction. This is 100 DEMO trades (forward testing) any system or method you think is your best bet...RIGHT NOW. Don't go to your MT4 platform and start downloading the data from your trades...those are past and now useless...start NEW, and demo trade 100 trades and keep you best foot forward with each and every one. Try to trade each trade the same way, and document, document, document. Once you have completed 100 trades in your spread sheet, AND you have the journal of your thinking process for each of those trades...you now have the basis to take an entire week (or two) to look at those trades, correlate them with your journal and again WRITE DOWN your trading and market beliefs.

I could not agree with this more. Testing and measuring everything, and documenting it all with spreadsheets and a journal has by far been one of the best moves I've made in my trading journey. I realize that there will always be uncertainty in the markets but by thoroughly testing and documentation of my own decision making process, I can gain a level of confidence that allows me to be comfortable enough with uncertainty that I can trade my plan with real money.

I could not ask for better testimony attributing the benefits of this technique.

u would all be more productive doing a mass circle jerk with each other...ok go ahead and ignore me, wtf do i care

I'd ask how your trading is going but it seems clear...not so great!! Have fun with your circle thing!!! I always say to stick with what your good at.

This has become something incredibly apparent for me and my trading. When I first started (2009) I was looking to gurus, strategies, combinations of indicators that when aligned, the holy grail would deliver pips in abundance, win ratios with the purpose of always being right.

Although I may have read some of the right content, my mind was searching for the above. Therefore never truly receiving the message...It's the same as learning the "process" of doing something as in step 1, 2 and 3; rather than understanding each step, such that you don't need to blindly remember a process. You truly, I mean truly get it. You are fluent in the mechanics of how it works.

What is now a primary purpose for me is having a fundamental understanding of price action, volume and time as you stated and how it relates to my system (Not that I'm and expert, but it's the acknowledgement of the purpose and dedication to the path)

My system, is my representation of price action, volume and time. When I see my simple combination of indicators align, it makes sense and isn't just pictures. Or me following someone else's pictures for that matter. To be honest, I've lost interest in indicators or methods outside of my scope of understanding, unless the time is taken to really understand the why's, whats and a how's.

I'm not mentioning money management or risk management in my response, although it is critical to being consistently profitable. I more wanted to elaborate and put emphasis and appreciation on the principle of understanding your system in relation to price action, volume and time that you outlined.

Learn to ask the "right" questions:
A big part of gathering data on your trading is knowing which data points you want to see. Admittedly this is also a subject with many points of view, and it is really up each individual to decide which data points are most relevant to help decide what is needed...so that brings me to the title of this post...Learn to ask "the right" questions.

Asking the right questions about your trading may be simultaneously one of the most frustrating AND revealing to your success. When trying to gain consistently, it is more than just saying to yourself, "How do I make more money?" In fact the title of this thread is one of the most commonly overlooked subjects in this business. Most asked the above question on money...when what they really mean to say is, "how can I be more consistently profitable..."

Everyone can make money in the market. All of us have. The problem is that we lose it again. And that is usually because your method of making money is not consistently profitable. It more than likely could be if you take the time to figure it out. So your question goes from, "how can I stop losing?", to "what is causing my losses?" It requires greater introspection AND documentation of your thinking that you can turn back to to find out what you were thinking when you made a decision and then looking at the results of those decisions, and then finding a way to make better decisions.

What you will quickly find out with this process is that you're not keeping the right records...your data points are the typical stuff that MT4 or your broker provides...these are not designed to help you but to keep you hooked on their system...get out your spread sheet and start asking "the right" questions...this will lead you to finding the right data points, which will then lead you to some answers that will help you modify your behavior, which you can then track and monitor your results.

Yes, I know this is a long and at times frustrating process...but it is a necessary one. Remember what Alexander Graham Bell said when he tried and failed so many times..."I've not failed, I've simply found 1,000 ways NOT to make a light bulb."

Learn the True Nature of "Risk":
This term "risk" is thrown around often and most feel they really know what it means, but a few questions about what risk actually can reveal that most are really unaware of its true nature. Most of us equate risk to monetary loss. That is a very small part of it, but what most people consider the most important part. Yet these same people will think nothing of climbing onto a 2.5 ton machine and hurl themselves at 115 Km/Hr and risk the lives of themselves, and any friends and family members that may be accompanying with them. What is the risk of losing money next to the debilitating and devastating consequences of crashing your car?

Webster describes "risk" as the possibility of loss or injury. So when we define that in driving a car, we do the prudent thing and buy insurance...WHY? Because we ACCEPT the eventuality that this afore mentioned possibility will become an actuality...got that? We MUST accept this or not drive. So let us first understand what risk truly is and then define it in the markets we trade. Risk is the possibility that price movements will go against your position or potential position. THAT's IT!! A possibility that price moves the wrong way (from your position).

So tell me something? When is that risk "higher" or "lower"? This risk is always there, no matter where, or how you enter, move your stop, or what ever you do...this risk (that price will move against you) is CONSTANT and never goes away. What's more, you MUST accept this risk or you cannot participate. Just like driving a car, you MUST accept that one day you will be involved in a collision, so too you must accept that one day price will move against your position.

There is no such thing as a high risk or low risk entry...there is only how much of your account balance you are prepared to expose to this risk and what precautions you will take to mitigate it when it does show up. This is why we use stops to limit our risk exposure, or use position sizing to accomplish the same task...that is the mechanics of a good methodology, but what about risks that have NOTHING to do with the market?

Just like in driving a car, we can increase or decrease our risk exposure by our behavior. If you regularly operate your (2.5 ton) motor vehicle at unsafe speeds, or while you are intoxicated, or distracted...the possibility of loss, or injury becomes a greater probability of harm. Like we say in English, "Its just a matter of time." You WILL crash...BAD.

So too if our trading behavior is careless, or distracted, we WILL loose. All that planning and methodology and system research goes out the window if you engage in risky behavior when you trade. So why would you do that? If you're plan calls for an action if x,y,z condition exists...AND if you have researched and tested your plan...AND you know that it is acting in your best interest...why would you deviate? Again this has nothing to do with the market, it is leaning how YOU behave under those conditions and regulating YOUR behavior.

Your "true" risk or your "higher risk" behavior does not come from the market (where the risk is a constant), it comes from how YOU act and or how you behave during times of stress AND glee. This is something over which you have complete and absolute control. YOU decide if your actions introduce more or less risk in your trading and YOU decide how to keep that to a minimum.

What a nice post, and not just something that will help in trading, but in life too
Thank you for including it in your thread.

I found out about better questions through trial and error, with truck-loads of errors lol.
Hope others can take note if they want to collect meaningful data.

Thank you for your kind words...I hope you find something worth while that will assist you in your trading quest to become profitable

Always something to learn and improve on, just like with asking the right questions There is no guarantee a profitable trader will remain profitable the next year, 5 years or 10 years.

I do agree with a lot of things you are saying but I have thought of driving and the risk involved with it compared to trading too.

Unfortunately driving risks and trading risks do not equate in my view. When you are driving, you are in complete control. You see the road well ahead (unless there is a visible/tangible disturbance in the weather), you have gas in the tank and a functioning vehicle with all you need in it to go from A to B. In trading, you'd be sitting in a car with missing a lot of functions and parts and to top it off, the road in front of you ends at candle 1. After that there could exist more road or a cliff. In car driving, you at least know the city workers are trying to maintain the roads so you can drive safely on them and your fellow motorists out of fear of losing their lives or paying high insurance are also relatively safe to be around. In FX, you have got shady brokers, unknown market conditions, technical or purposeful glitches and also, the regulators can actually stick it to the clients as they do all the time.

Sorry, the driving and insurance example doesn't work. Maybe driving in a storm like the hurricane chasers would be closer to trading in that regard.

How do you define 'Consistently profitable'?

Is that a forever thing? To be consistently profitable you have to start today and every day you need to be profitable? Or every week/year etc?

To me under capitalization is my problem and probably the same for others. If you trade a .01 lot system with 1K, you are much much more in danger of blowing up than if your account was 1 mil and you traded the same system. So, to be consistently profitable with what you've got is the real question here. Unfortunately traders with 1K or even less are the ones in a hurry to make money more than the ones with 1 mil. So, if you could twist your guidance a bit to include low capital situation trading as a condition in the effort to be consistently profitable, then I am all ears. Of course one can say trade small, trade when 100% near right (who doesn't?), save your money til you have enough etc etc...but good luck making any money that way.

ps: I haven't read the whole thread, so if someone has already addressed and solved the under capitalization issue, kudos.

That's fine...the metaphor wasn't exactly meant to be a parallel, more symbolic for the fact that risks exist and absolute acceptance of these risks is necessary.

And this is the illusion with driving and the basis of my metaphor. You are NOT in COMPLETE control of the vehicle. Only of those things that involve your actions. Your actions direct the vehicle, but you do not control the road conditions...even if you can see them coming...you can only control your RESPONSE to those conditions. Again your decision making and actions result in the "illusion" of control. But you don NOT have complete control. There are others on the road and their actions can have direct consequences to your driving "control"...just like there are others in the market and their actions can have direct consequences in your trade. You driving is more than just instruments and indicators in your car, it is the "feel" of how the car responds to your actions. You cannot control the condition in which you drive, you only decide whether or not you should drive under the current conditions.

All of these things (metaphors) are just a mechanism to get you thinking that trading risks are more than just the action you take (stop loss, position sizing etc) that give you the illusion of control over your trade. It is also looking at the market conditions, and making good decisions whether or not to engage. It is maintaining your vehicle (you health/mind) in the best condition to keep the chance of problems to a minimum. In my world, (not necessarily yours) trading and risk management is more about making good decisions and constantly "reading" and interpreting the current conditions.

All of this in my view is risk management. It identifies potential for risk as soon as it presents, then evaluate that risk's potential to develop into something threatening, or not...something like (but not equal to) reading the road ahead when you're driving. You have no control over the road conditions or what might be around the next bend. You simply take actions and make good decisions to stay safe and arrive at your destination in the most efficient manner possible.

I wasn't sure that phrase needed definition but here is what I meant. You trading is profitable more times and in greater amounts than the overall losses you incur.

Yes we all have losses...it matters only that when you lose (in total) is less than when you win (in total)...it means your equity curve points upward...overall. Consistent...profits.

it should be!! If not then what's the point?

You can measure it anyway you want. Personally, I measure it on a weekly/monthly basis. I think it naive to think that you can be profitable EVERY DAY you trade...however your losses and profits should be profitable pretty much each week/month. Again, some measure this on a longer or shorter basis...but consistent means just that...consistent.

Hello again OutThere,

It is clear you don't consider driving as risky...admittedly it is a manual skill that gets better with practice. However there ARE risks involved and that was the point of the metaphor...clearly I didn't do well communicating this fact with you. Sorry...But I'm confident I have conveyed the idea I was trying to put out there...

1. When engaging with the markets the risk is constant
2. You MUST accept that risk or not engage with the market
3. Through your actions and good decision making you can mitigate that risk

Lets try not to get too sidetracked on whether my metaphor/analogy was the correct on for you...

Hello Donpato this is my first post I've been hanging around all week gathering information and I have just seen this thread I shall be writing most of it in my notes to go over, over the last two days I've been stalking a members page and watching how he trades he was killing it yesterday and all this week mostly large wins small loses until today he could have taken $700 in profit on one trade this morning I thought surly he will cash that in but he let it go this said member is now at -$2000 for that trade and it's still open.

Yes! live account

Is this profitable?