All language subtitles for 2. How To Make Your Strategy Mechanical

amateur retail traders severely oscillate and struggle between two

opposing emotions to explain this we're going to look at

two traders the first trader is retail robbie and he represents the emotion of

indecisiveness now when you're trading and you're looking at the market have

you ever felt just a little bit of creeping out and it started to hesitate

you know wondering should i enter the trade and get involved is it ready yet

or am i too early maybe i should wait a little bit longer

for just a bit more confirmation but i don't want to go without me

or maybe you know have you ever struggled deciding how to manage a trade

that you were in when you don't know whether to hold the trade or close it

down and take what profit is currently on the table just in case it reverses

against you but then what if it continues going in your direction well

you don't want to miss out on all of that potential profit so you hesitate

and you agonize over what the right decision is

because i know how i used to feel that doubt and hesitation all the time

you know where i was never quite sure what the best decision would be and to

be honest it just used to make my trading so unnecessarily stressful it

just was not enjoyable at all and it was starting to make me fall out of love

with trading really because it's only when you have the benefit of hindsight

that you then realize when you look back of course i knew i should have bought it

or i knew i should have sold right there of course i should have held the trade

it was obvious it was going to keep going why didn't i just leave it alone

i'm an idiot you know as they say hindsight vision is

20 20. it's always crystal clear after the fact

now do you ever experience these emotions in the market you know if you

have been trading before because the majority of losing traders or even those

who are just struggling to find consistency they are constantly

fluctuating between those two poles of indecisiveness about the future and then

regret over the past and they're constantly hesitating and doubting and

then being frustrated afterwards when they see the outcome of their decision

and yet they're indecisive because they're constantly trying to predict the

future but then they look back on the past with regret

so think of this as a swinging pendulum from left to right with amateur traders

constantly swinging back and forth between these emotions in the market so

how do you stop this back and forth rhythm between hesitation and regret

how do you transcend these two polls so you can make your decision making as

objective as possible how do you get to the point you know up

the top there where you have absolutely zero out or hesitation

before making a trading decision so that you never feel regret in hindsight after

you have made that decision regardless of the outcome of the trade

because down here at the bottom of the diagram this is where the masses play

the masses of losing traders and up at the top is where the professional

traders are you know those top 10 the ones who are consistently making

money year in year out so how do you get up there where you

have certainty in the market and you never feel doubt hesitation or regret

how do you separate yourself from the losing masses and become a consistently

profitable trader do you want to be a hindsight trader for

the rest of your life you know i've been there thinking

i knew i should have sold there but you know what it's okay i'll make the right

decision next time then you're stuck in that cycle and you

never quite seem to get it right consistently and i'm like creeping doubt

in your approach that you know you can feel deep down it then never quite goes

away or do you want unwavering certainty when

you approach the markets every day now i don't mean certainty and that you're

gonna win every trade that's a complete fantasy of course

i'm talking about having the certainty that you are making the correct decision

every single time with zero doubt or hesitation so how can you be so certain

that you are making the right decision ahead of time

well there are two types of trading strategies the first type of strategy is

called discretionary trading and this is decision based training where the trader

decides which trades to take based on their own judgment and current market

conditions so as you can see in the diagram you know from the starting point

of analyzing a currency pair all the way through to actually executing an order

you will go through a decision-making process now discretionary traders they

will make all of these decisions based on their own human judgment

now the major problem with this approach is that the more discretion you apply to

your decision making process in the market then the higher the chance of you

making emotional mistakes so how do you reduce the chance of you

making those emotional mistakes how do you stop feeling doubt how do you stop

feeling hesitation and how do you stop feeling regret in your trading so you

can be in that top 10 percent so you can be a consistently profitable trader well

if you can replace as many of the individual steps in your decision-making

process with extremely clear rules-based and mechanical criteria then you will

drastically reduce the chance of you making an emotional mistake

now the second type of trading strategy is what's called a mechanical strategy

which essentially is just rules-based trading so instead of the trader

deciding which trades to take based on their own you know human judgment

instead the trading system decides which trades to take regardless of what your

human bias may think so if you think about you know

programming your trading strategy into a computer algorithm then you need to give

it a series of binary questions that only have a yes or no outcome so that

essentially it follows an if then process

so an event will occur in the market you will then consult your plan to see if it

meets your criteria if it takes the first box then you move on to the next

criteria if it doesn't meet that criteria then you simply do nothing and

you move on otherwise if it does then you just

simply work the whole way through until the setup has met all of your minimum

criteria and then you can just simply execute the trade

no doubt or hesitation now think of the market of a game like

pac-man i'm sure you're all pretty familiar with how that works so each of

these hollow circles they represent a trading decision that you must make to

progress to the next step you have practically unlimited

possibilities of getting from point a to point b in the markets there is no map

it's down to you to choose your path what entry signal are you going to use

to enter a trade will you wait for a supply and demand zone to form how will

you define that that zone is valid what type of order will you use to enter the

market where are you going to place your stop loss how will you manage your trade

will you leave your stop-loss open or will you move it to break even will you

trade your stock behind price or sell to take profit order or a combination of

both if you do try your stop how many pips behind price will you trail it if

you set a take profit order where will you place it on the next key structure

level how do you define a key level how do you draw them consistently the same

way every time how many pips in front of that key level will you set your order

are you going to scale in where and how will you scale in to add your position

okay so i think you get the picture you know there are many decisions to make

when we're trading so it's down to the trader to set their own parameters ahead

of time with a clearly defined rules-based strategy and this eliminates

as many of the open-ended possibilities and it gives you that narrow course of

action to take so you simply make the same decisions over and over and over

and over again having a mechanical strategy of course

won't guarantee success on every trade but what it will do is it's going to

help you to manage your risk minimize your losses and nail down and secure

your profits and handle unexpected events with decisive action

which over time will drastically drastically improve your chance of

success by clearly defining your training

parameters ahead of time you are establishing a basis for knowing whether

your strategy and your edge whether it's actually working or not and then you can

accurately refine and optimize it over time

so let's look at two different traders the first trader on top they have a

clearly defined systemized trading plan with very strict rules there is a clear

set of criteria that they take off to make every single training decision so

that they make the same set of decisions over and over again now the second

trader they utilize a much more discretionary approach so they know that

they have you know a couple of rough styles that they utilize to trade the

market and within each of those styles and they've got a lot of options open to

them at each level so they've got many different entry

confirmations you know just for the same setup it's very open to subjective

interpretation sometimes they trade from the 50

fibonacci level sometimes from the 0.618 sometimes they just use an ema if they

kind of just randomly pick where to place a stop loss of you know where it

looks pretty safe to place it you know they'll use horizontal support and

resistance levels but they don't have a fixed systematic process for

consistently placing them they do not have a consistent mechanical

method for identifying areas of interest on the chart that they consistently you

know repeat with accuracy sometimes they'll try to stop other

times they'll just place a take profit order but they place it in a different

area every time sometimes you know just manually close

and exit a trade if it doesn't look right you know whatever that means

now both of these traders they both experience four losses in a row

now hitting four losses in a row is perfectly normal and expected even if

you have a strike rate of 75 which is a really really good strike

rate it's very likely that these losses are

just simply part of the probability model playing out

but if you take four losses in a row how do you actually determine if those

losses are simply just a part of your probability model or if you had made

mistakes or just executed bad trades that you should not have taken how do

you actually determine that now consistently profitable traders we

have a deep understanding of something called random distribution right and we

know that the outcome of any individual trade is actually random

but on a collective basis when you have a larger sample size of trades just the

exact opposite is true if a large enough number of trades are taken patterns will

emerge that produce a consistent predictable and statistically reliable

outcome and that is your true trading edge it's just logical basic math there

is no way around it do you remember the two layers of

beliefs that professional traders hold that on the surface they do seem to

contradict each other and the first layer is the micro level

remember at this level you have to believe in the uncertainty and the

unpredictability of the outcome on each individual trade and the second layer is

that macro level and at this level you have to believe that the outcome over a

large series of trades taken is relatively certain and predictable

but here's the major key remember it's the ability to believe in

the unpredictability of the game at the micro level and simultaneously believing

in the predictability of the game at the macro level that makes the professional

trader effective and successful at what they do

they have learned and completely accepted the fact that they don't know

what's going to happen next no one does but more importantly they don't need to

know in order to make money consistently they don't care and that's why they

don't feel hesitation or doubt in their trading

so if we go back to our two traders the mechanical and the discretionary trader

who both just took four losses in a row which trader do you think is going to be

sweating more which one is starting to panic and doubt their strategy or even

begin to doubt their own ability who do you think is now more likely to

be hesitant and make an emotional mistake who is more likely to skip the

next trade out of fear or take a low probability or even random trade to try

and make their losses back as soon as possible

is it going to be the trader who can analyze those four losing trades and

clearly see if those trades met all of the defined criteria of their strategy

who can then see that those losses were actually just in fact valid trades that

are a part of their strategy and therefore those trades are a part of

their probability model and those losing trades were simply a cost of doing

business or will the panicking trader be the one

who has no real idea if those losing trades are a part of their probability

model or if they were simply just bad trades that should never have been taken

and those losses could have been completely avoided

i think it's pretty obvious that discretionary trader with that

subjective approach is the one who is most likely to be feeling those negative

emotions and is therefore most likely to make an error next

now obviously without a reference point based on clearly defined and sound rules

you have no way to measure the outcome of your trading decisions and therefore

you have no real idea if things are going along as planned or if there is a

real reason for concern you need to eliminate the variable that

is you and the only way to do that is to make

consistent decisions that can be measured

now let's put some numbers on the situation so we can see exactly why this

is such a major issue for losing traders so after those four trades both traders

are down let's say minus four percent now when the systematic trader looks

back and they review their trades and then they see that they followed their

plan perfectly they ticked off every single criteria in their trade plan

they're gonna have way more confidence to continue to execute with minimal

emotional interference and they take the next trade which is a five percent

winner and they see their edge playing out but the discretionary trader they've

been doubting and hesitating after taking those losses and they can't face

the pain of another potential loss so they skip their next setup and they miss

out on the winner now that they see their trade play out

they're frustrated they missed it but you know they have a bit more confidence

so they execute the next trade and they catch a two percent win

now you can see after those six trades the trader with a systemized approach is

sitting on a net three percent profit while the discretionary trader is down

minus two percent this is what i see happening again and

again with you know so many traders who are just struggling to find real

consistency and stop doing the break even thoughts

because when the mechanical trader when they review their trades and they look

back and they see that they follow their plan perfectly

they're not going to hesitate or doubt their next setup and they're the ones

who are going to catch their next stream of profitable trades and march onto new

account equity highs but whilst the discretionary trader

they're just going to keep digging themselves into a deep drawdown or maybe

you just continue playing that break even game for years and years never

really going anywhere wasting their time energy and money

hesitation kills traders

once you have a mechanical and a systemized strategy the level of emotion

that you will feel in the market after just taking a few losses will be

drastically minimized and you will then be able to execute with ruthless

decisiveness and extreme clarity no one likes losing obviously right

but imagine for a second a world in which you do enjoy it

how is that possible well when you do have a systemized edge

as long as the losing trades perfectly met your strategy criteria then you know

that each loss is bringing you one step closer to your next profitable run of

trades now i used to struggle so badly with

this before i changed my strategy where i would take a few losing trades but

then because i didn't have an extremely systemized approach i would start to

doubt and hesitate my own ability so i would naturally skip trades because you

know i shouldn't face taking another loss because i wanted to quit my job so

badly just wanted to become a full-time trader and then every single loss that i

took each loss felt like a direct threat to my plans to try and escape my nine to

five but then because i skipped trade setups to avoid that potential pain i

would then inevitably miss you know those winning trades and then after

feeling the pain and the fomo of seeing those winning trades play out without me

i would then revenge trade by you know rushing into poor setups which i'm sure

you can guess of course would just end up losing me more money so that was

stuck in this never-ending death loop which was you know feeding off itself

because i was just so desperate to make it but all i had to do was simply change

my approach to break out of it not having a proven defined edge is very

likely the root cause of most losing traders problems

because if you were playing poker would you bet on a hand if you couldn't see

your cards of course not why on earth would you do

that when you you can't see what edge you have you have absolutely no idea

what probability you have of winning it's just pure gambling with zero edge

but so many traders in the markets are essentially betting on hands when they

don't even know what cards they are holding it's insane

do not be a blind trader because you do not have to be

having a very discretionary and subjective approach to trading it's

tough in your psychology it's very easy to second guess any decisions that you

have to make in the market but it's also extremely hard to accurately test and

journal your strategy because how can you have any certainty if a trade is

actually valid or not people can overcomplicate trading but we

know that the path to success is very clear

you must have a systemized strategy that you can consistently execute and easily

test this way that you can prove your edge

with data and then once you prove it with cold hard data that is the only way

in which you will have a bulletproof mindset and once you've developed that

bulletproof mindset you will then not make those emotional mistakes because

it's only once you cut out those emotional mistakes and those slip ups

that you will then start to enjoy those consistent results that you desire

because then you have a sustainable strategy because you're executing the

same crystal clear setups again and again managing the trade the same way

every single time and that is when you actually have the

solid foundation built upon which you are now ready to rapidly scale acquire

investor capital or you know funding from a prop firm and you can very

quickly scale to multiple six seven or eight figures the sky truly is the limit

you know many traders moan that oh it's the lack of capital you know which is

the reason why they're not having any success but let me ask you this

if you were given a one million pound training account today

are you ready to comfortably trade it you know be honest with yourself

would you be able to confidently risk 10 000 pounds so that's one percent risk on

a million pound account right would you be able to confidently risk 10 grand on

the next trade with your current strategy with extreme confidence and

clarity in your approach because if you're not then you'll never

be able to scale until you have extreme confidence and clarity in your proven

edge to be able to eliminate any hesitation

and doubt when you're trading so that you can act with ruthless decisiveness

you must have a consistent repeatable and scalable approach so you can snap

out of the break even dance and start to rapidly compound your growth

you see all training strategies fit somewhere along the scale

from 100 discretionary where the trader literally has zero framework but just

decides with their gut instinct all the way up to 100 mechanical where you can

literally use an algorithm to execute the strategy for you i personally think

that the sweet spot for training is around that 70 to 90 mark and this is

where you will enjoy all of the benefits that we have just discussed from you

know having that mechanical and sort of very systemized approach but it will

also allow you to avoid some of the drawbacks of being 100 mechanical

because you still need a little bit of room for human judgment and it's

actually that small element of human judgment that is required that actually

gives us an edge over algorithms and that's why algorithms they tend to you

know they can work really well in the short term

but they nearly always eventually blow up unless they are constantly tweaked

and refined by human input the market is a dynamic environment which is always

constantly changing so we need to adapt with it

so how can we make our strategy mechanical well there are four main

areas that you need to fix first being trade entry the second mean

stop-loss placement the third being your trade management

and the fourth being risk management so now we're going to get nice and

practical and we're going to dive into each of these four areas to kind of look

at how we can make them more mechanical and systemized so you can start getting

results so trade entry you must enter the market

the same way consistently every single time so essentially you know we always

look to enter on supply and demand zones right okay sounds pretty simple but what

type of order are you going to use are you going to set a limit order or are

you going to wait for price to enter the zone and then hit an instant market

order what time frame are you going to use for

your entry execution are you always going to use the same

time frame for entries no matter what say such as the m1 or are you also happy

to use the 15 seconds you know as well or maybe you just want to use risk

entries on the m15 zones for example whatever you want to do just make sure

you define you know which time frames are valid for

you and if it is more than one and in what circumstance it is valid to use

another time frame just so you know you're not constantly jumping all over

the place are you going to only use flip zones or

are you only going to use structural zones or maybe you're going to use both

so you're going to use zones that cause flips and brake structure

does it need to be a sweep zone so does the zone need to take liquidity when it

was created does the zone need to have inducement in

front of it does your entry zone need to be in the

premium if you are selling or does it need to be in the discount if you are

buying and if so what time frame are you going to use to determine if you are on

the premium or the discount for example

you might be trading n15 pois right and 15 zones but you're using the m1 for

execution within those m15 zones so you might use the m15 range to determine if

price is in the premium or the discount now when you draw your zones are you

always going to take the entire buy to sell or sell to buy range or will you

refine to a pivot or a single candle or even a fractal refinement

where on the zone are you going to enter will you enter on the distal in the

front edge of the zone or will you always enter on the eq or will your

entry depend on how big your subtotal size is instead

you know you must be as specific as possible

because there is no other way to be consistent with your approach so just

make sure that you don't leave any details out

so the second key area to look at is your stop-loss placement so you need to

develop a fixed formula for consistent placement

now there's multiple ways of doing this like anything in training

but we always place our stop loss behind the supply demand zone that we enter on

as an absolute minimum but what i would advise is that you

define the exact number of you know pips that buffer that you want to give your

stop-loss behind the zone you know just to account for you know spread and

sometimes if there's slight spikes of the zone um just to make you kind of you

know consistently do that way every single time so you know it could even

just be half a pip a pip whatever it obviously will differ on kind of what

time frame you're on and what pair you trade

so you can also use a fixed stop loss for each individual pair you trade so

let's say with you're a donor you know once you've obviously tested your

strategy um you may find that over a large sample size of trades but actually

three pips is the most optimal stop-loss size to always use but then maybe for a

pair like pound yen which is which is typically quite a bit more volatile than

you're a dollar uh in terms of its average fuel range

just means in terms of how many pips it moves a day

you may find that six pips is actually the most optimal surplus size

so now you have a fixed mechanical consistent way of sizing your trade

every single time leaving no room for uncertainty or hesitation

and a final way is just to use a fixed stop loss behind a swing high or the

swing low so instead of just protecting your stop

behind you know the entry zone you may also want to cover the actual swing

point just in case price pushes you know further towards the extremity of the

zone you might increase your odds of actually

staying in the position obviously this will probably likely

sacrifice your wrist to reward a little bit um but it may boost your strike rate

but just again you know make sure you define how many pips behind the swing

that you will place it and of course this could differ from pair to pair and

what time frame you're actually entering on now once you have a fixed method for

stop plus placement it's obviously going to be far easier on your emotions at

times where you might only literally just be stopped out by even a micro pip

before price then reverses in your favor but then instead of looking back in

hindsight and saying i should have just had a slightly wider stop and then you

know sitting there counting all of your missed potential profit instead you will

be assured in your approach because you followed your plan perfectly and

consistently now of course even if you find you keep

only just getting stopped out then you know exactly what part of your plan then

needs refining and optimizing and it makes it really easy to you know adapt

and improve your strategy because you have that consistent approach that then

you can look back on and just tweak that little bit right

and obviously you can't do that when you have a subjective and inconsistent

approach to to placing your surplus remember we are trying not to be

hindsight traders so the third area is trade management

and you know if you could hypothetically only make one area of your trading

strategy mechanical then this would be it

now why do i say that well it's because of after working with

many traders i've seen that a lot of them you know they have the ability to

pick out and enter really really great trades but what separates out those who

get you know those great returns are the ones who can consistently manage those

trades well so once you have entered the trade

obviously your emotions are going to be pretty high because you now have your

capital at risk and wherever you know money is involved we tend to make quite

irrational decisions right as humans so if we have that mechanical management

strategy where you know we can simply just follow the plan like a robot then

this can help to eliminate any room for those potential emotional mistakes and

also you know there's no room to be annoyed if price continues on further

after you've actually executed your trades and exited because you know that

you're going to manage the same way every single time

so it helps you to eliminate that feeling of greed and dissatisfaction in

the short term because you will see the long term benefits from that consistent

management approach so what are some of the ways in which we

can do this well we can use a fixed take profit order based on a risk to reward

ratio so for example you may trade a fixed rr

of ten to one where you use no active management so

you are either stopped out for a full loss or price hits your target or maybe

you wanna you know move your stop loss to break even only once price has

reached 5r running profit for example right so you can start to get a little

bit creative here now the way that you would calculate

your actual profit target um is you take your stop loss size and then you

obviously multiply it by whatever your chosen rewards or risk ratio is so let's

say your stop loss was five pips and then you're targeting 10r

you would then set your take profit order 50 pips away right 10 times five

now another way is selling your take profit order on a key level so you can

target an unmitigated supply and demand zone or maybe a weak swing high or low

or any obvious liquidity points in the market where we expect price to pull

back or reverse but again you must have a mechanical way

for drawing and identifying your key levels on your charts for this to work

now the other way which is one you know as you guys know i don't really

recommend personally but you can actively manage your trade by trailing

your stop-loss behind the swing highs lows and just simply following the trend

so this way in theory you should be exiting on the the trend change right

but as always you must be extremely specific

so how many pips in front of your key level will you set your take profit

order how many pips behind the swing high or

low will you trade your stop loss what time frame are your targets going to be

based on are you targeting the four hour swing higher low or just the m15 for

example or are you going to use both if you are going to use both then he's

defined in what situations you are targeting the four hour and when you

will just use the m15 or if you're using partials how much volume are you going

to partial at each of those levels

you know you don't just want to be doing this you know kind of based on your gut

feeling when you're in the trade you need to have this all laid out and

written down before you're even looking at the charts to trade each day

now the final main area to look at is one that i think many traders don't

really spend too much time considering and that is risk management because

professional traders they understand random distribution right that no one

knows the sequence of their winning and losing trades so they always keep their

risk constant so make sure that you are always using a fixed position sizing you

know risking the same percentage of your total account balance on each trade

define how you will scale in will you only do it once the risk of your initial

position has been removed how much will you risk per day

you can define this by the max percentage of your total account balance

and then the same for your total open risk so this is how many trades you will

have running at one point with stop losses fully open

so just make sure you define all of these ahead of time and you consistently

use fixed risk so to summarize if you enter the same

way every time you use a fixed formula for stop-loss sizing you manage your

trades like an algorithm and you use fixed position sizing then fixing these

elements of your training it will allow you to accurately measure and optimize

your strategy performance only when you have a clearly defined

strategy can you actually identify the bottleneck and then fix tweak and

improve your strategy it's how you can adapt to the constantly changing market

environment and actually stay ahead of your competition in this zero sum game

if you want consistent results but the market is random then be consistent in

what you can control and be a slave to your strategy

you don't need to try you don't need to try and predict the

markets you just have to try and be in the markets every time a high

probability trade setup buy your plan is provided