A Day in the Life of a Successful Trader – Define your Trading System
By Jody Samuels
This article in The Trader’s Pendulum Series is the Take Action article for you to follow in defining your trading system, as you move from hobby to business in your trading. In the last article we discussed the importance for a trader to develop a trading system, strategy and plan as part of the ‘A Day in the Life of a Successful Trader’ series. Your mission in developing these habits is to get out of the Technical Trader’s Trap and transform into an Entrepreneurial Trader so that you can start being accountable to your trading. By now you have completed the Scorecard (www.fxtradersedge.com/scorecard) and are ready to get down to business by arranging a free coaching session.
Define your trading system by answering the following questions:
1. Describe your trading system.
a. What are you planning to trade?
b. What is your trading style and time frame for trading?
For example, you may be a day trader with a mechanical system trading off the 15-minute and 5-minute charts. You may also have a swing trading system for longer-term trades that you establish every evening. It is possible to use different strategies with different styles. The recommendation is to set up different accounts for different strategies. For example, a day trading strategy will be traded in a separate account from a swing trading strategy.
c. Identify the key indicators in your trading system and why you use them.
d. Describe your chart setup for each strategy. (For example, you may have a trend strategy for getting into the trend, and you may have an end-of-trend strategy for finding the end of the trend before the correction takes place).
2. Determine the rules for your trading system.
a. What is your daily premarket routine?
b. How do you analyze the general market conditions?
c. How do you determine the position size traded (what is your percentage of capital at risk for each trade)?
d. What are your profit targets – pips, points, ticks or dollars (cents) per trade per trading style (momentum, day, swing or position)?
e. How many trades do you intend to take per week per given style?
f. How much time will you devote to trading in a given day or week?
e. Specify and print out your chart setup for each strategy.
f. What are your criteria for entering trades?
g. How do you determine your potential profit area for your exit strategy?
h. How do you determine your stop loss on each trade?
3. Create a pro-forma estimate for projected trading net revenue.
a. What are your estimated # of trades per week?
b. What is your monthly estimated win/ loss ratio?
c. What is your estimated profit (pips, points, ticks or dollars) on weekly and monthly trades?
d. What is your estimated loss (pips, points, ticks or dollars) on weekly and monthly stopped out trades?
e. Estimate monthly and annual pip, points, ticks or dollar profits.
f. Convert pips, points and ticks to dollars.
g. Determine your return on investment (use total $ amount of unleveraged capital).
h. Determine your return on actual trading capital used in your account.
If you’re interested in adopting these habits and working through the business planning template for Habits 1 – 10 discussed in this article series, the book is a detailed blueprint for you to follow and make your own. The book is also supplemented by a companion website with downloadable tools.
If your mission is to become a trader or investor who stays out of the Technical Trader’s Trap, then take the leap to grow into an entrepreneurial trader.
I created the FX Trader’s EDGE Coaching Program modelled after the “10 Habits of Successful Traders”, which is the title of my newly published book by Wiley.
Excerpted with permission of the publisher John Wiley & Sons, Inc. from The Trader’s Pendulum: The 10 Habits of Highly Successful Traders. Copyright (c) 2015 by Jody Samuels. This book and ebook is available at all bookstores, online booksellers, and from the Wiley web site at www.wiley.com.