It is so simple.
How to become a consistently profitable trader?
Here is the action plan to become a pro trader, in its simplest form:
- find and learn to trade a profitable trading system
- execute it flawlessly
That’s it. Simple yet hard.
I am not there yet. Writing helps me clarify my approach. Those who traded for a while will understand what I mean.
If I had a chance to read this “action plan” a few years ago, I would probably think: “blah, blah, just share a profitable trading system and I can make money”. Yeah, this is less simple, now I know. Read on.
To actually execute this action plan, we need more answers.
How to find a profitable trading system that is right for you?
What is a trading system? A trading method, strategy, approach. This is what I mean here, not necessarily a mechanical “system”.
How to find the system that is right for you? Or more than one, for different market conditions or use depending on how much time you have available.
How to effectively learn to trade it? What tools, methods, how to test and qualify it? How to tell if it is good?
How to build discipline to execute the system with consistently high quality? Managing the risk, taking trades only if and always when all criteria are met.
Each question above can be answered in one sentence, or it can be a topic for a book, or a blog post. This will be topics for my posts over next months, feel free to subscribe if it looks interesting.
If you are earlier than me in your trading journey, in case you think “just share a good trading system rules and anyone can make money trading it”, here you go:
- Find a trending market. It will have higher highs and higher lows. EMA 20 above EMA 50. EMA 50 slope up (reverse for downtrend).
- Look for a candle that touched the EMA 20. It is called pullback or retracement or a correction. In uptrends, we want the low if this candle to be below EMA 20. We still want it to close above EMA 50. This is a trigger candle. It should be a relatively small candle in terms of its range.
- Place a buy stop order above the high of the trigger candle. Stop loss below the low of the trigger candle. Position size such that – if the stop is hit – you will lose a small amount of money that you are comfortable with losing. If the next bar does not make a higher high and so your order is not filled, update the order.
- If you are filled, trail the stop behind the last low, or the last bar, depending on your preference on letting the winners run vs. grabbing a quick profit.
- You can experiment with different EMA parameters.
- Before you trade it, qualify this setup.
- Of course this is not a holy grail, but I believe this is a potentially profitable trading strategy. It is simple. It looks for low risk places to join the trend.
- Choice of markets is also key, scan many markets (forex, stock indices, commodities, ETFs) and apply this strategy to ones that are trending. Watch out for correlated positions.
- Timeframe is anything from hourly to weekly, depending on how much time you have available, as you should check the chart every bar.
Will you do this? A few things make it hard: there will be series or losing trades in a row, there will be “giving back” a lot of paper profits, most of the trades will be losers, but, if executed right, there will be small number of trades that are big winners, a few times bigger than initial loss, making this overall potentially profitable.
If you are more experienced than me in your trading journey, and reading this anyway, please feel free to share any comments or insights. I will appreciate it a lot, I am trying to learn a new thing every day.