I would like to have critical thoughts about my trading plan.
Risk Management
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No more than 2% of capital should ever be risked on a single trade.
This includes the spread fee.
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As capital grows, the amount risked on each trade will grow. This is because 2% of €10000 is greater than 2% of €5000. So your percentage risk always stays the same from trade to trade, but as capital grows the amount you risk becomes more, potentially resulting in larger gains.
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Every trade taken, must have Reward to Risk Ratio of 3:1 or higher.
Reward to Risk Ratio per trade, can’t be lower than 3:1.
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If potential Trade can’t meet this 6% reward level, move to next trade.
You are not allowed to trade lower reward trades.
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Every trade, must have Stop Loss and Take Profit levels.
NO Trades without them. Stop loss can’t exceed 2% of account balance.
Take Profit level must make at least 6% gain.
If you trade more than one lot at time. YOU MUST assign Take Profit to break even for the first lot. TP should be 2% of capital plus spread.
No trades to correlated pairs simultaneously.
Check correlation before opening trade. Forex Correlation | Myfxbook
Trade Setup:
You can only trade currency pairs that have spread below 5.
Only trade in Daily, 4H and 1H chart.
When you are consistently profitable you can add lower charts.
Before trade position is opened this must happen.
Check relevant currency pairs for Up/Down/range signals.
Open Daily chart.
Draw one horizontal support line at the significant support level closest to current price.
Draw one horizontal support line at the significant resistance level closest to current price.
On DAILY CHART and 4-HOUR CHART, look for trading opportunities as price approaches these support and resistance levels.
ONLY TRADE A+ SIGNALS.
Is the Trade Setup With the Trend?
Is the Trade Setup*at Key Support or Resistance?
Is a Valid Price Action Signal Present?
Does the Trade Setup Allow for a Proper Risk to Reward Ratio?
All above questions must be yes.
Out of the people I know successfully making their living from trading, none has an R:R ratio as high as that.
If you look at places where there’s objective information about the R:R ratios of large numbers of successful “independent traders”, the average is also a lot lower than that.
Systems with an R:R of 3+/1 tend to have some [I]very[/I] long losing runs and losing patches, which makes risk-management terribly difficult, especially for anyone without both very substantial capital and lengthy experience.
[QUOTE=“lexys;760190”] Why do you think this is a good idea? Out of the people I know successfully making their living from trading, none has an R:R ratio as high as that. If you look at places where there’s objective information about the R:R ratios of large numbers of successful “independent traders”, the average is also a lot lower than that. Systems with an R:R of 3+/1 tend to have some very long losing runs and losing patches, which makes risk-management terribly difficult, especially for anyone without both very substantial capital and lengthy experience.[/QUOTE]
You only need to win 30%.
My bread and butter trade is 30-50 tick stop with an upside of 100-200.
I am not trading FOREX fulltime. I can wait for good trade. If i have 5 to 10 good trades, with this in a month i would be happy. I have tried this in demo accoun for 2 months now, demo account is shownig to me atleast that this could work. Account is up 18% with 4hits and 3 misses. Before i will commit any real money to this, i will demotrade it atleast additional 4 months.
Never understood why people set a fixed R:R to exit trades. The market couldn’t care less about hitting your R:R before reversing. Having a fixed R:R is going to make you lose more trades than you want, and miss out on larger moves as well. Your R:R is going to be decided by the rules of your strategy and the current market conditions (volatility, liquidity, etc).
End of the day, use your own judgement. R:R shouldn’t be set in stone, sure it’s nice to have a R:R > 1, but you cannot force it. There are strategies that have a 95% win rate and a R:R of 0.2, and strategies that have a 15% win rate and R:R of 7:1+. Are you going to say any of them are wrong?
Other things to note, 2% is a lot per trade. Also, fixed fractional position sizing only works on smaller accounts. As the account gets bigger, your drawdown becomes more steep, which makes recovery increasingly tedious.
[QUOTE=“ClarkFX;762307”]Never understood why people set a fixed R:R to exit trades. The market couldn’t care less about hitting your R:R before reversing. .[/QUOTE]
Brilliant should write it with gold
Example: if you enter a trade from which you can gain 40 pips (target) but can lose only 20 pips (stop-loss, including spread/dealing-costs) if it all goes wrong, then your R:R = 2.0.
Forget about text book trading. 3 to 1 is absolutely difficult to achieve and 2% of risk is doom if you are running a big account. If 2% per risk with institutional usually with max 5% drawdown, you will have to end your career on 3 losses trade. Statistical and reward ratios works on bulk trade, not a single or couple of trades.
Because you’re making things more complicated than it needs to be by not using a fixed R:R. It is only entry that matters anyway. If you can’t win with a fixed R:R, you can’t win with a dynamic R:R.
Lack of discipline in sticking to your trading plan is one of the main reasons for newcomers failing in forex.
If you cant stick to your plan, theres no point having one. And if you dont have a plan youre just gambling
I think there is a difference between Institutional Trading and Retail Trading. 2% risk is fine with Retail Trading as these are small accounts compared to mega accounts of Institutions.
Surely you can see from the first post that this thread’s a discussion of one person’s specific trading plan. Whom are you trying to help by observing in it that “trading plan is definitely the most important as a trader”?
