Home Trading Strategies 4 Trading Lessons Traders Learned TOO LATE

4 Trading Lessons Traders Learned TOO LATE

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4 Trading Lessons Traders Learned TOO LATE

hey hey what’s up my friend so in today’s video I only share with you four four things that traders learn too late okay so since you’re watching this video and hey it’s not too late for you right but often right when I see traders who blow up they’re calm traders who quit trading altogether it’s because they don’t realize you know one of these four lessons that I’m about to share with you okay so let’s get started first lesson is this right imagine you own a French can business you have a business that you know specialize in selling fried chicken let me ask you what is the most important thing for you right now as a French can business owner I’m sure you would agree that the most important thing right now is to make money to be net profitable right so you would focus on your net profit you want to make sure that your revenue last your expense right it’s a positive sign this means you’re making money consistently right you make money in the long run with your revenue is always larger than your expense and you won’t be focusing on stuff like website domain name no legal stuff branding logo and stuff like that yes it matters but right now the most important thing is net profit and how do you get net profit well you work on getting more customers right the more customers that comes in the more customers that buys Fried Chicken the more money you’ll make and the greater your net profit simple stuff right and why am i sharing this with you well because this concept here is the same as trading as a trader right now right if you are not profitable your breakeven or you’re losing trader the most important thing right now is to find an edge in a markets to have a trading system that has a niche in the markets right it’s not to focus on your wristt reward ratio your treatment is when your psychology or discipline no none of that yes those methods but not till you find a niche in the market it’s not till you have a trading system that has a niche in the markets once you have a niche in the markets then fair enough you know you can work on your trading psychology you can optimize maybe your you know your risk profile you can better time your entry you can work on your trade management and stuff like that but not till you find a niche in the markets and it’s the same for the fried chicken right once you have a French come business that is profitable maybe you can take some of the capital and invest in marketing you can work on your brand you can work at the website your domain and stuff like that but not till your fried chicken business is profitable okay make sense good then let’s move on and by the way if this is the first time you’re watching this video right give me a thumbs up button right and subscribe to my youtube channel that the button just below just click subscribe this way whenever I publish another video maybe that a French can video okay you will always be updated good okay okay let’s get started number two you must have the right expectations in trading so often traders come into this business and they have unrealistic expectations or maybe he’s from the market they never this minority anything that it can take a few thousand dollars and treat full-time taking a few thousand dollars and not turn it into six figures or seven figures we didn’t short period of time well I’m here to tell you that no those are unrealistic expectations and the problem with unrealistic expectations is it demper’s your learning curve for example let’s say you have the expectation of making fifty percent of month maybe because that’s what you’ve seen other traders do okay and let’s say you know you are trading a trading strategy and that man you only make like three percent and you think yourself man and forty seven percent away from my target let me ask you what would you do to reach the target of 50 percent a month chances are you’re gonna increase your risk right because you have a target of 50 percent you only up three percent a measly three percent which is a pretty pretty decent but you think is only a measly three percent so you’re taking more risk and then you hope the larger risk that you take are I could get you to your fifty percent target you might get lucky first month second money might hit your fifty percent target but in the long run eventually the drawdown would come and then you boom right past your trading account and that’s how traders go bust because they take on too much risk relative to their account because they have unrealistic expectations that’s number one number two you might have you know a profitable trading system but again right you make a measly return and you think that man this system isn’t working let me look for something else something better something they can mix that can make me more money alright I’d hop onto another trading system my workout for a while then again you realize man is not what you’re looking forward at you abandon it and look for something else in in the long run what’s gonna happen is that you will hop from one system to the next the next to the next on the mix and realize that you know you’re going around in circles getting nowhere frustrated give up boom you live the trading industry all together that’s what it’s likely to happen as well so again right have realistic expectations right if you ask me right if you trade off the daily timeframe you can no benchmark anywhere between 10 or 20 percent by risking 0.

5 and 1% risk on each trade this is just a very general ballpark figure okay if you’re better you can do better than what I just share with you and perhaps if you are a lower timeframe trader swing trader day trader you can also you know expect a higher percentage return a higher are multiple right for the full year because you have more trading opportunities so this is just a very general ballpark figure for you to to expect off right and and or if you have made this unrealistic expectations before I because I myself I did the same thing when I just graduated from university I thought that you know hey I can pull some money like like about twenty thousand dollars right and to trade full-time right all I need to do is just make twenty percent man that’s four thousand dollars a month and I can pretty much you know leave comfortably so I tried it for a few months and I realized man this is not working on it and that’s why I been denied their debt so call a food I’m trading career that I had for myself right so that’s where I know I got into a job at a MNC before cutting in the prop trading before got into twr and that’s a story for another day but again I made the mistake just to share with you as well right so have realistic expectations mix not all returns are created equal so let me ask you already agency for itself right there are two systems over here system a and system B so system a right gives you a hundred percent Richard Oh hundred percent and system B gives you a net return of about thirty percent a year let me ask you which system do prefer system a or system B I know most of you are thinking man this is a trick question yeah you’re right it says that it’s a trick question because I didn’t give you the full details of it right because what I fail to tell you is what is the risk required right to create these systems so let’s say for example system a has a 100 percent return a year well what I didn’t tell you is that system a now right I know most of you of course we know system error is so simple right highest written best system Bianca with this but what I didn’t tell you is there you know system a let’s say it has a drawdown of 80% means at one point in time right it has to 80% drawdown so what this means is that if let’s say you have a starting capital of $1000 if you trade system here right there’s a possibility right the system right would cause you to lose your capital losing 80% of your capital from thousand down to $200 so there is a loss of 80% so that is an 80% drawdown whereas on the other hand system B right let’s say 30% return and the maximum drawdown is let’s say 10% so again you have $1000 and though the worst day the system would perform right is a maximum drawdown of 10% so you can expect that thousand dollars to decline possibly to $900 so you can see that clearly yes system made it has greater written by the same time it has a greater level of risk required to trade it so what I’m trying to bring across is that you must know the risk required to achieve the returns so don’t see you know no social media website blogs in and people posting there I know there are returns because it may be a very high return it may be very good but what they don’t tell you or show you is the risk required to achieve those level of returns and that is important my friend so one way to kind of you know quantify or judge how good a trading system is this you can look at something called the Amer ratio the manish managed accounting reporting ratio I hope I got this right because this is a term derived from the hedge fund industry right they ma are ratio I might have got it wrong but anyway the way to calculate this this our MA our ratio Mar ratio is to just simply take the annual return divided by the maximum drawdown so for example the first one right let’s say a no-return hundred percent maximum drawdown is 80 so that should get you about one point let’s see one point two five is it man one point two five okay so your Mar ratio is one point two five for system B you just take 30 let’s is the a no return divided by 10 that’s the maximum drawdown and if a more ratio of three so clearly right from a risk to return profile system B is a better trading system because for one unit of risk right you can offer offer you write three times the return for one unit of risk a way to look at it is yeah what I pretty much c4 one unit of risk that you take it offers you three times the return rate for this right for one unit of risk that you take it only gives you 1.

25 written I mean in the real world this is really pretty pretty decent rating I’m just you know putting things in perspective here comparing system a and system B so one way to judge the performance of a system right not just looking at a net profit is to look at the more ratio right which is a no-return divided by the maximum drawdown and you get a Mar ratio mix not all trading strategies are created equal so uh this is quite interesting so let me just share with you let’s say you let’s talk about trend-following so trend-following is a trading system a trading strategy right that seeks to write trends and market the win rate are typically low because you know most of the time the markets don’t trend hid your stop-loss and you get a loss so let’s say for example a trend following system with a 40% win rate and an ambition for one to two risk reward ratio okay say let’s say out of ten trades you have six losers and four winners so clearly you can see that at the end of it right let’s say you know 1% risk to keep things simple right you would have you know six losers – one percent – 6 % 4 times 2 right because as a average risk to reward of 1 to 2 so you get a net gain of 2% ok so this is for a trend following system for losers 6 losses 4 winners for mean reversion system right it tends to have a higher win rate ok let’s say you for win rate of 60% and poorer risk to reward ratio I want C I’m gonna show what poor is not really a good word but let’s say it has a risk to reward ratio of about 1 to 1 so gay this one is quite quite straightforward let’s say you have 6 winners and four losers your net game is also 2 percent why 2 percent very simple right the six wins that you have all right one two one gives you six percent the four losses that you have right let’s say you also risk one percent on each trade so six percent – four percent gives you two percent return so you can see that these two trading strategy they end up right having similar returns but the biggest difference is the the wind Raider of each system right one might have a lower dream win rate but a better risk to reward ratio and the other might have a higher win rate with a poorer risk to reward ratio and there’s no best there’s no right or wrong it really depends on knowing yourself the trader what type of trading strategy suits you and then you know you find it strategy and you trade it okay so don’t go around or Reno as a trend follower I follow Rainer no don’t do that right understand the different type of trading strategies out there I’m just sharing with you two over here which are pretty much you know quite different but there are more variations to it so I understand the type of trading strategies out there understand the type of win rate you expect the average risk to reward ratio so once you find something that suits you then you can go and trade it okay so understand the trading strategies you’re trading because not all of them are created the same and as a general guideline right usually when you have a lower win rate you have a deeper drawdown and the length of your drone is longer compared to a trading system that has a higher Winry okay so with that right let’s uh do a quick recap right number one you must have a niche in the markets right just like running a French can business right you want to focus first is on your itch not on your wrist war ratio not on your psychology not on your trade management not on your stuff like there no no no focus on getting an inch number two you must have realistic expectations in trading trading is not a get-rich-quick scheme in fact a people that trading to get rich slow scheme okay have realistic expectations manage you know your expectations alright so you don’t get disappointed along the way man I didn’t make fifty percent this man I’m a horrible trader no come on right I’m three not all returns are created equal because as I’ve shared with you right returns without looking at risk it’s like okay I can come up with a analogy but when you look at returns always look at the risk required right to achieve those returns and finally right not all trading strategies are created equal alright there are many different type of trading strategies that make money in the long run but where they might differ is their win rate the length of their drawdown and they I know the average risk to reward ratio so understand them right before you treat those strategies that you want to go with okay so these are the four things right and I hopefully I share with you it’s not too late for you if you’re watching this right now it’s it’s early okay and also okay if you if you want to learn more right go down to my website trading with Rena calm right this one is not too late as well still early right trading rainy or calm and have a couple of trading guides here for you if you want to learn more about trend following writing trends then hey ultimate trend for mingi it’s for you click this blue blue orange button and I’ll send it to your email address for free if you learn more about price action trading market structure support resistance then click this one over here and I’ll send this ultimate guide to price action trading to your email for free okay so with that said I have come towards the end of this video if you have enjoyed it hit that thumbs up button subscribe to my youtube channel below and feedback questions comments let me know below and I’ll do my best to help with that’s it I’ll talk to you soon you

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