Tag Archive for: removing limiting beliefs

What If Your Trading Plan Cost You Money?

I recently got a daily forex trading plan from a new student and eager beaver who asked for some help with their plan. The moment I opened it, I realized it was incomplete and needed work. To be fair, they had gotten this template from another course, so cannot fault the student.

I generally suggest having two trading plans:

  1. The Day-to-Day Trading Plan which includes your daily procedures
  2. Your Business Trading Plan

What we’ll be focusing on here is related to #1 above. Below is the general outline of their current forex trade plan, which I’ll go over, show you what needs to be changed, and what is missing.

Their Current Trading Plan

  1. Introduction
  2. Price Action Signals to Trade
  3. Rating a Trade
  4. Time Frames
  5. Pairs/Instruments to Trade
  6. Risk-Reward Ratio
  7. # of Positions
  8. Position Sizing
  9. Stop Loss & Take Profit Rules
  10. Rules for Entry
  11. News Events
  12. Documentation
  13. Losing Trades

Do you see anything confusing, missing, or out of place here?

trading plan 2ndskiesforex

 

What I Would Change

#1: Introduction – I think this was a good start. However, two things in this introduction stood out;

a) the opening statement, ‘The goal of this plan is to avoid emotion-based trading‘
b) ‘the trading plan may be adjusted, and the rules edited‘

Lets start with A – If the goal of the trading plan is to ‘avoid emotion based trading‘, the current plan only helps for that day, but doesn’t get at the root cause of ‘emotion based trading‘.

Where should the real work be done for this? Prior to any trading, and in the ‘training’ phase! How? Proper training, building your sub-conscious skill set, and removing limiting beliefs.

For B – this is fine to allow the trading plan to be adjusted, but how often? The trading plan should be an evolving document as your level develops and grows as a trader. But put a time factor to this and stick with it.

I would have in the introduction why I am trading, what I am trying to achieve and what my daily goals are. More on this later.

#2: Price Action Signals to Trade – A military general doesn’t start their plan with tactics. They take all the information in to get a broad picture – i.e. the ‘context‘. In trading, this relates to understanding the price action context first. So this section needs to be later in the plan.

What would I put here? Pre-trading preparation, i.e. how will you prepare for each trading day (physically, mentally, market analysis, etc).

#3: Rating a Trade – We haven’t even gotten to our price action context first. This comes before rating a trade for quality. So this should be done here, starting with our top down analysis, how we find the correct context, then go from here.

NOTE: In this template from the other course, their highest point rating for a trade was ‘big size‘ for the signal bar.

Now let me get this straight – the size of the 1-2 bar pattern, is given the most importance? One bar out of the 30-50+ bars which comprise the validity of the signal?

confusion about trading
Seems like a confusion to me on what price action is about. Yet ‘Trading with the Trend’ is 5th on their list? How does one bar by itself, have greater value than the entire trend and order flow to this point?

Lastly, the 13-pt rating list completely rules out intra-day trading. A trading plan should be flexible enough to incorporate both.

# 4 & 5: Time Frames – by now, we are too far ahead of ourselves with this plan. Once we know the context, only then can we know the tactics (price action strategies) to use. We cover this in more detail with our course members.

One other thing about this is the fallacy that the time frame is more important than the instrument you trade. Should be the other way around.

Pairs/Instruments to Trade – Although this is completely necessary, I think in one section you can have the pairs/time frames you are trading.

# 6, 7 & 8: Risk-Reward Ratio/# of Positions/Position Sizing – The first one is completely irrelevant by itself without understanding the Risk of Ruin.

You can use my risk of ruin calculator to find yours. For more information on the risk of ruin formula, click on the link above.

Number of Positions – kind of irrelevant. Although you may have a fixed % equity risk per trade, what if you start your day, and realize 4-5 high quality setups on deck?

fixed percent equity risk model superior than fixed dollar amount graph 1 2ndskiesforex

My suggestion is to have a max risk per day, and per trade. If your max risk per day is say 5%, and you spot 5 trade setups, then you can risk 1% per trade. If only 2, then you can risk 2.5% per trade. As long as you keep the risk of ruin at zero, the number of positions should not be limited IMO.

Position Sizing – Can all be addressed under one section, which I’d label ‘Risk Management‘

# 9 & 10 & 13: SL & TP Rules/Rules for Entry – should be addressed in the strategy itself.

#11: News Events – I’d say make this part of the ‘pre-trading preparation‘, under the ‘market analysis‘ preparation.

#12: Documentation/Journal – I agree this needs to be part of your forex trade plan. But there is nothing in here about reviewing your trades, or end of the trading week analysis. Monthly, quarterly and yearly reviews would be recommended.

What About Training?

I generally recommend having a completely separate plan for training, very much like professional athletes have practice/training routines, which are separate from game-day preparation. Trading should be no different.

For those trading higher time frames like daily and 4hr strategies, I’d recommend using your non-trading time for practice/training. This is not just demo trading, reading books, or studying course material. We suggest going beyond this with live forward simulation trading, just like fighter pilots do simulators, or baseball players have batting practice.

practicing forex trading 2ndskiesforex

Our favorite tool for this is Forex Tester 2, which allows you to go back in time, and then live forward trade it bar by bar as if they were appearing in real time.

You can get a $50 discount on Forex Tester 2 by clicking here.

In Summary

As you can see, the template they were working with was quite confusing, lacking key things, and out of order. Had I been working off that trading plan and not known better, I would be approaching the market incorrectly every day, missing a dearth of things.

It is important to understand a professional trader will see things on a more sophisticated level than your traditional 1-2 bar pattern trader. Professionals, by default, can recognize opportunities beginning traders will not, like a good poker player can make money on more hands than a weaker one. This also goes for one’s daily forex trading plan, so having a more evolved one will give you a greater edge.

professional traders 2ndskiesforex
Ask yourself, how sophisticated is your trading plan? Does it feel unorganized, confusing and incomplete like the first template? Does it even include pre-trading preparation? What would you recommend adding to this trading plan?

Please make sure to share your answers, along with whether you agree or not, and why you agree/disagree.

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Why Do Most New Years Resolutions Fail?

By now many of you are in full swing with the new year, and at least 6 days removed from creating your new year resolutions. Below are some interesting statistics about new years resolutions, some of which I think will not shock you.

1) About 8% of people are successful in achieving their new years resolutions (not far off from trading)
2) 25% of those who make them don’t even make it past the first week
3) 34% of those resolutions are related to money
Source: Betterment.com
Do these numbers above surprise you? My guess is if I surveyed 1000 people, the majority would not be surprised.
We’ve all made resolutions and failed to keep them (including yours truly).
Have you ever asked yourself why is that? I certainly did.
new years resolutions why they fail chris capre 2ndskiesforex
Why do so many people consistently make new years resolutions, yet fail to really nail them? Made a resolution to always fill out your trading journal each day without fail, only to a few weeks/months later finding yourself not filling it out? Why?
The reason you did not fill out your journal, or consistently risk a fixed % of equity per trade, or whatever resolution you made is the same underpinning reason all resolutions fail.
In this article, I will briefly share a far better method for making consistent change, then ask the critical question as to why most fail.

2018 trader resolutions 2ndskiesforex

A Far Better Model For Consistent Change
One of my yoga students Mark Gonzales eventually went on to become a great yoga teacher himself. In 2012 he was given the Yoga Journal’s Talent Search Winner Award, and has one of the most influential power yoga channels on youtube. He still humors me in letting me know my classes were some of his hardest ever. I appreciate that sentiment as I wanted him to push his body and mind to become more than what he thought he could do.

One brilliant insight Mark recently shared captures a far better model to consistent change. Here is what he said below;
“New Years Resolutions are for those who didn’t work hard enough or look after themselves the year before. Self improvement can start now, all year round, from this moment forward.”
Indeed, for those who are constantly working on themselves all year round, there is no need for a new year resolution. It is far easier to work on yourself month-in-month-out then to rev up the change engine once a year. If you have not been working on removing your limiting beliefs throughout the year, then a new year’s resolution is most likely to fail.
It is like not running all year, then all of sudden taking yourself out for a long run when your lungs and legs are not ready for the task. You are most likely to fail, and then imprint negatively on your self-image ‘it is not like me to make the changes I need/want to‘.
This only hinders your confidence and decreases your likelihood of making lasting change in the future. Every negative imprint from failing to keep a commitment or resolution only adds on to the difficulty of changing your trading mindset in the future.
Daily affirmations by themselves will not make lasting change, especially since most are done improperly. Their is an underlying flaw in daily affirmations most fail to see. Also making those trading resolutions at the beginning of the year creates the idea you can only change once a year. This is also a fateful idea.
It is far easier to work on smaller goals throughout the year, that eventually build up your self-image and confidence to make the big changes. When you have seen yourself do the work earlier, it becomes more ‘like you‘ to do the work later. This is a far superior model for consistent improvement and hitting your target.

hitting the target in trading 2ndskiestrading.com

Why Do Most Resolutions Fail?
Understanding this one thing would help unlock many of the critical reasons why you make the same trading mistakes, why you have a streak of winners and lose them all in one trade. It is the same reason why you follow your trading plan for a few weeks/months, but then go off the reservation.

The reason why a trader fails to make consistent change and build a successful trading mindset is the same reason why most resolutions fail.
With that being said, before I share the answer – why do you think most traders make the same mistakes over and over again? Why do you think you fail to keep your risk management? Why do you think you succumb to the same emotions you know are toxic to your trading?
Many of you are smart people and can certainly figure out most of what you are doing isn’t helpful. Yet you still do it anyways. Why do you think you continue to do things which you know will only hurt your trading performance?
Please make sure to share and comment below. Your answers will be incredibly revealing as to where you are in your trading process, how much you understand about the trading mindset, and what you have to build mentally to become a successful trader.

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Protecting Your Mental Capital

In 99% of the cases, when hearing about ‘protecting your capital’, what’s being discussed is your financial capital, or money in the account. But when do you hear about protecting your mental capital?
Unfortunately there is very little discussion about protecting your mental capital. And yet, it can often be more important than protecting your actual capital (i.e. money).
protecting your mental capital 2ndskiesforex
What is Mental Capital?
Your mental capital is very much like an account balance reflecting the strength (or weakness) in your self-image and trading mindset. A good example is confidence, or lack thereof. Some other ingredients which affect/are part of your mental capital are;
Doubts
Fears
Beliefs (positive, limiting or negative)
Impatience
Self-esteem
Laziness
Discipline
Focus
Awareness (both self, and in the moment)
Beating oneself up
Negative or Positive Language
Mental Toughness
Your mental capital is something (just like your risk capital) that has to be protected and built up brick by brick. However, there are no mathematical formulas to help you with this. The two things that affect your mental capital the most are 1) You and 2) Your environment.
building self image brick by brick 2ndskiesforex
Ways to Protect Your Mental Capital
There are many ways to protect your mental capital, of which, I’ll share a few simple techniques here;
1) When in a trading slump, go for smaller, more achievable goals 
We’ve all gone through losing periods, but the longer they go, the more potential they have to affect our mindset. Sometimes you just need to get a few winners to build your confidence back. If getting 2R on a trade just seems out of reach, try going for 1.5R, or 1R. Just nailing a few wins can do magic for your confidence and beliefs. Its an external confirmation to your mindset you can make good trades. When this belief comes back, you start to find yourself making better trades.
2) Avoid beating yourself up
This takes awareness in the moment, so anytime you catch yourself doing this, you have to stop the negative self-talk. Instead, think about things you do really well. Think about something which you’ve overcome in your life. By recognizing your strengths, you start to engage them more, while replacing the negative self-talk. It’s a more constructive thought process to engage in and helps to strengthen your trading mindset.
3) Take on less
Maybe you are trading 3-4 systems across several time frames and instruments. If you cannot perform consistently at this level, reduce what you take on. Trade less systems, instruments and time frames. Try doing a few things, or even just one system really well. When you start to perform well with that one system, winning more trades and making money, you start to create a positive belief you can do this. This leads to a confidence which you can then use taking on just a bit more, very much like lifting weights.
 
In Conclusion
These are just three simple ways to protect your mental capital, and there are many more developed methods, techniques and ways to do this. One example is ERT training, which helps to re-wire your brain and remove those limiting beliefs.
ert training to re-wire your brain 2ndskiesforex
Not protecting your mental capital will only lead to negative emotions, beliefs and habits. But protecting your mental capital will help you build constructive and positive trading habits that ultimately lead to better trades. There is nothing more powerful than someone who believes in themselves. All great performers have this. Your goal should be to become that person.