Last Updated on
I get it.
You need your job to feed your kids, pay your bills and to survive in this inflationary environment.
But… it doesn’t mean you can’t be a profitable Trend Follower.
In fact, it’s a good thing to have a full-time job.
Because you remove “the need to make money every month” attitude. And this greatly increases the odds of you being a profitable trader.
Here’s what you”ll learn today:
- The 3 biggest reasons why most traders fail, and how to avoid it
- Everything you need to know about Trend Following
- How to trade less than an hour a day using a simple Trend Following strategy
- How to record your trades like a Pro
- How to do your “homework” on the weekends and still have family time
- How to schedule your trading without quitting your full-time job
Are you ready?
3 biggest reasons why most traders fail, and how you can avoid it
If you haven’t heard, the failure rate of traders is extremely high.
Based on what I’ve seen, for every 10 traders that attempt, only 2 will be consistently profitable (and I’m being optimistic here).
So what is the cause of such high failure rates?
1. Thinking it’s easy
If you wanted to be a doctor and eventually make a 6 figure income every year, you have to pass a slew of gatekeepers. Beginning with your first four years of university.
Then medical school gatekeepers ensure that only those that are academically suited enter the the school. During your years in school, there are numerous tests that judge your emotional abilities, to handle the job along with your intelligence.
Once you finish school, you know have to pass another gatekeeper, the licensing boards of each state.
Once you have your license, you now have to join a law firm, or hospital which means you have to get by their gatekeepers.
Once you’re in, you now have to bust your ass for years to make partner, or get to the point where you can open your own private practice.
The end result is that after 7-9 years of universities and 5-7 years of busting your ass for someone else, then and only then, will you consistently make a 6 figure income.
Now, let’s look at trading Forex. What do you need to become a trader? A frigging computer and $500. Yet everyone thinks they’ll be making a consistent 6 figure income in a few months or even years.
Forget the fact that the industry is full of some very, very intelligent people, who have spent years learning how to be a consistent trader.
Forget the fact that you’re going up against organizations that have millions of dollars to throw behind their traders in the form of support, such as analysis and system testing.
Forget the fact that these same organizations are playing on a different field than you are. All you need is a few indicators, a broker that doesn’t screw you too much, some money management, and in a year or two you’ll be living the high-life.
Is it any wonder so many fail?
Credits to Dopey from Forex Factory for the above post.
Trading isn’t easy. You need an edge in the markets, a ton of hard work, and iron discipline.
If you have all 3 ingredients, then you may have a chance of success.
2. No trading plan
Do you know what losing traders have in common?
No trading plan.
When you have no trading plan, you will:
- Trade based on your emotions
- Cut your winners too soon
- Hold onto your losers and hope it turns around
- End up blowing up your trading account
But if you have a trading plan…
It removes subjectivity in your trading, minimizes the roller coaster emotions, and keeps you prepared at all times.
Can you see the power of having a trading plan?
3. No risk management
You have a trading system that wins 60% of the time, with a 1 to 2 risk-reward.
Over the next 7 trades, your wins and losses look like this… “lose lose lose lose win win win”.
If you risk 25% on each trade, by the 4th trade you will have blown up your trading account (-25-25-25-25 = -100).
…If you risk 2% on each trade, you will net a gain of 4% (-2-2-2-2+4+4+4 = +4).
Do you see the difference between blowing up your trading account and being consistently profitable lies in risk management?
So here’s the thing:
You can have the best trading system in the world, but if you have no risk management, you’ll still end up broke.
The most important rule of trading is to play great defense, not offense. – Paul Tudor Jones
So, you’ve just learned how to avoid the biggest pitfalls in trading.
Now, let’s move on to Trend Following itself…
Everything you need to know about Trend Following
Trend Following is a trading methodology that, seeks to capture trends across all markets, with proper risk management.
And here’s 5 trading principles that, every successful Trend Follower must follow…
Buy high and sell low
You walk into a supermarket and you see apples being sold, 3 for $1. So, you get some apples for a nice healthy snack.
The next day…
You go back to the supermarket and, realize the same apples are now being sold, 3 for $5.
Would you buy it?
Probably not because the price is too high. You’d rather wait for the price to drop, or find other alternatives.
Now you’re wondering:
What does buying apples have anything to do with trading?
Because your attitude towards buying apples is brought over to your trading endeavor.
Here’s what I mean…
Looking overbought at (USD/JPY):
Just follow price and you’re on the path of least resistance
You want to be right.
It feels good to know you called the tops and bottoms in the market.
However, when you start making predictions in the market, it clouds your judgment, and you start losing objectivity of the markets.
This leads to fatal trading mistakes like:
- Refusing to take a loss because you want to be right
- Averaging into your losses because you can get it “cheaper” now
- Revenge trading because you want to make back your losses
Now, what should you do instead?
The best thing you can do as a trader is, just follow price.
Here’s what I mean…
Uptrend at (NDAQ):
If you notice the price is forming higher lows, with resistance constantly breaking, chances are it’s an uptrend. You should be looking to long.
If you notice price forming lower lows, with support constantly breaking, chances are it’s a downtrend. You should be looking to short.
Risk a fraction of your equity to allow your edge to play out
As you’ve seen earlier, having a winning system without proper risk management isn’t going to get you anywhere.
Instead, you need a winning system with proper risk management.
The recovery from the risk of ruin is not linear. The more you lose, the harder to regain your losses.
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
No profit targets so you can ride massive trends
Although trend followers have no profit targets, it doesn’t mean we don’t exit our trades.
Here’s a couple of examples…
Missed the whole move at (BCO/USD):
- Moving average crossover
- Price closing beyond moving average
- Break of price structure
- Break of trendline
- Number of ATR away from the peak/trough
If you want to learn more, read The advanced guide to setting your stop loss.
The hardest part about Trend Following is riding your winners. Because you’ll watch many small wins turn into losses, while attempting to ride the trend.
This results in low winning rate but, high reward to risk.
Trade all markets to increase your odds of capturing trends
Markets spend more time ranging than trending. Thus, it makes sense to look at a variety of markets, to increase your odds of capturing trends.
Trend followers trade everything from currencies, agriculture, metals, bonds, energy, indices, orange juice, pork bellies, etc. You can view a comprehensive list here.
If you recall, most major currencies were ranging during the 1st half of 2014…
Trading across different markets help reduce your drawdowns and improve your profitability.
And this is one of the biggest secrets behind a trend follower’s success.
Trade less than an hour a day using a simple Trend Following strategy
Now, let’s put the information to use and develop a trading strategy.
Since you have a full-time job, its best to trade the Daily time frame as it requires lesser screen time (and allow you to catch big trends).
You must risk a fraction of your equity on each trade to survive the inherent drawdowns. Keep your losses to no more than 1% on each trade.
You should be able to trade about 60 markets from these 5 sectors.
- Agriculture commodities
- Non-Agriculture Commodities
**Disclaimer: I will not be responsible for any profit or loss resulting from using these trading strategies. Past performance is not an indication of future performance. Please do your own due diligence before risking your hard earned money.
A simple Trend Following strategy:
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading conditions).
If it’s an uptrend, then wait for “two test” at the dynamic support (using 20 & 50-period moving average).
If price test dynamic support twice, then go long on the third test (your entry).
If long, then place a stop loss of 2 ATR from your entry (your exit if you’re wrong).
If the price goes in your favor, then take profits when candle close beyond 50ma (your exit if you’re right).
Vice versa for a downtrend
Here’re a few examples…
Winning trade at (XAU/USD):
Now, let’s move onto something equally important…
How to record your trades like a Pro
Executing your trades isn’t enough.
You must record down your trades so you can continuously improve your trading performance.
You can easily do this on an excel spreadsheet with the relevant metrics below:
Date – Date when your trade is entered
Time Frame – The time frame you are entering on
Setup – The trading setup that triggers your entry
Product – The financial product that you trade E.g. Apple, Gold, Eur/USD
Lots – Position size you entered
Long/short – Direction of your trade
Tick value – Value per pip. E.g. 1 standard lot of Eurusd is $10/pip
Price In – Price you enter your trade
Price Out – Price you exit, at profit or loss
Stop loss – Where you will exit if your trade is wrong
Profit & loss – Profit or loss from this trade
Initial Risk in $ – Nominal risk value of this trade
R – Your initial risk of this trade. E.g If you made 2 times your initial risk, you made 2R.
An example below:
How to screen capture your charts
After recording down your metrics, you’d want to save your charts for future reference.
Here’s how you can do it:
- Save the chart of your entry timeframe
- Save the chart after the trade is completed
Chart of the entry time frame
This chart is the time frame you entered on (which is the daily chart). You’ll mark out the entry and stop loss of your trade.
In this section, write down your thoughts like:
- What’s the setup
- At which price you entered
- Where is your stop loss
Here’s an example:
After completing a trade, you’ll save the chart with your thoughts on it.
In this section, write down your thoughts like:
- Did you follow your plan
- What’s your profit/loss in R
- How did you exit your trade
- How could you improve on it
Here’s what I mean:
Of course, you don’t have to follow exactly what I do. Instead, you should “tweak” it according to your needs as a trader.
How to schedule your “homework” on the weekends
I wish you could simply enter your trades in the morning, and make a profit at the end of the day.
Unfortunately, it doesn’t work that way.
Instead, you need to do your “homework” on the weekends, to prepare yourself for the week ahead.
Here’s what you need to do…
1. Highlight a list of potential setups that may occur in the coming week
This is where you scan through the markets and identify potential setups that meet your requirements.
Once you’ve identified it, you can save it in an excel spreadsheet like this…
2. Write down your thoughts on how you’re going to trade the potential setups
Before you enter your trades, you need to know what’s the requirement you’re looking for.
Or are you going to trade without “confirmation”?
3. Write down your thoughts on how you’re going to manage your existing positions
You’d probably have some trades which are currently in profit. The last thing you want to do is to exit your trades based on emotions.
Thus, you need to write down how you’re going manage your existing trades.
Some ways you can trail your stops are:
- Moving average
- Trend lines
- Structure of the markets
If you want to learn more, go read The advanced guide to setting your stop loss.
4. Review your past trades and improve on it
When you’re reviewing your trades, you want to ask yourself questions like:
- Is there a better way to enter my trade?
- Is there a better way to manage my trade?
- Is there a better way to exit my trade?
- Did I make any mistakes?
- Did I feel good taking the trade? If not, why?
How to schedule your trading while having a full-time job
Here’s a quick guide on how to manage your trading while having a full-time job.
Before work (7:00 – 7:15 AM)
Manage your existing positions and trail your stops accordingly.
If there’s a new setup, place your orders in the market.
This will take you no more than 15 minutes, and it’ll be even faster when there’re no trading setups.
Lunchtime (12 PM)
There’s nothing to do here since you’re trading off the daily charts.
After work (9:00 – 9:15 PM)
Check if your orders are triggered. If they are, record down your trades and screen capture your charts.
Scan all the markets you’re trading and identify potential opportunities for the next day. If there are, write it down and update your excel spreadsheet (so you can prepare for the next morning).
This won’t take you more than 15 minutes because the bulk of the work is done on the weekends.
Here’s how your schedule would look like:
Use limit orders to get in at more favourable price levels
So, what’s next?
I’ve just shared with you step by step, on how you can capture massive trends in the market while keeping your full-time job.
As you’ve learned, the bulk of the “homework” is done on weekends, with minimal screen time required on weekdays.
I believe you have greater odds of success trading in this manner because your full-time job will provide the financial security you need.
Now it’s time to put these techniques into practice.
The first step?
Click on the link below and enter your email to get access to The Ultimate Guide to Trend Following.
This guide will teach you everything you need to know about Trend Following (and additional trading strategies that I’ve no space to share here).