My Framework for Successful Trading

Do you want to make big bucks trading the markets? We’ve heard all the stories of how traders can make a quick fortune in the markets. Can it be done? Maybe. Do you want a piece of the action?

I started spread betting in the UK almost thirteen years ago, as my confidence grew I moved on to UK stocks, U.S. stocks, then the E-minis, and now forex. It’s turned into a love affair where I can’t imagine NOT trading and look forward to the next days’ skirmishes with the markets. Trading for a living, for me, is the best occupation there is. No boss, no overheads to speak of, work when you want, anywhere you want, freedom; just you, the computer, and your plan.

Plan! What plan?

Of course, you need a ‘plan’. Anything in life worth doing must have a plan of sorts. Trading is no different. In fact trading without a plan is asking for trouble of the most serious kind, financially speaking. You must have a plan. The operative word here is ‘must’.

This is a very modest document, the content of which has been the subject of many books and has been studied in depth by the very best of traders. It will be studied and debated for years to come. My aim here is to plant a seed that hopefully will steer you in the right direction in formulating your trading plan thus saving you countless dollars, not to mention heartache and ruin. Your plan IS a prerequisite before placing any trade.

So, before you start to lay your hard-earned money on the line, there are many, MANY, things that need to be taken into consideration. The very first lesson to learn quickly is that the professionals who trade the markets for a living are not going to think twice about taking that money from you. They know all the tricks in the book, and a few more to boot. The idea is to act and think like those professionals and eventually become one. The profits will then begin to flow.

If you have no idea what you are doing, then you just may as well mail a check to those above-mentioned professionals and leave it at that, saving a lot of time.

On the other hand, after losing ‘quite a bit’ in the markets, I copied them and you could do the same by learning their tricks. In short, study, study some more then continue studying. As they say, ‘knowledge is a powerful thing’. You will eventually come to the point where you actually know what you are doing!

Everything will then begin to fall into place.

Where do I start?

Trading is very, very easy. Making a consistent profit is not – unless you have the plan we talked about earlier; a master plan. You need to learn, and sustain, some good habits. The primary weapon in your arsenal in fighting your opponents is getting the odds in your favor. Gaining an EDGE. Just like the casinos. Take a look at the house edge in the casino and how small it is. Something like 2.5%, this is enough to make them a fortune over time! It’s just the same with trading the forex markets, get yourself an ‘edge’.

Let’s stay with the casino example for a moment. They often have losing days when a punter will win big, but at the final reckoning; those boys will be in the money. And that is because of the ‘edge’. Your edge starts here. It’s not one item to concentrate on but your whole approach to trading. Sound complicated? Not really, when you break it down into its component parts. There really is no point in doing this exercise if you only pay lip service to it. You must follow your rules because they will get you into the money, no argument.

Rules

There’s no point in having trading rules if you don’t follow them, which very nicely brings us to our only golden rule: YOU MUST FOLLOW YOUR DEFINED RULES RIGIDLY.

This rule may sound silly but think about it, what’s the point of having rules if you don’t follow them? How often do you break minor rules in some other pursuit such as driving, sport, or work? Sometimes it can be costly, in forex it can be very expensive indeed, account-wise. My forex rules are split into three sections, you may wish to do the same:

  • General rules – similar to laws, these govern your whole outlook on trading
  • Trading rules – similar to regulations, these are aimed at you as a trader
  • System rules – rules when actually trading your system

Remember, this is a very short article on the ways that I have tackled the problem of gaining an edge in my trading, and in trying to emulate the professionals. This is by no means the only way, so you will need to address your trading traits in a similar manner to extract those profits from the market that we all aspire to. Let’s look at the general rules.

The reason you are reading this is because you want to make money. I have been in your shoes doing exactly the same thing, but at the wrong end of an £8,000 ($11,937.56 USD) account. Yes, all gone! It wasn’t the first account that I had delivered to ‘the professionals’ so something HAD to be done. I made rules and divided them into sections, analyzing them yet further. Here are my general rules that you may want to consider:

a) General rules

  • Work/study hard continuously, knowledge is essential, but
  • Strike a balance, have a life. Trading at all times will make you stale
  • Take responsibility for every decision that affects your trading
  • Self-belief in your aim, in what you are trying to achieve
  • Do you want to trade full time or part time, how many hours per day?
  • What IS your aim, what do you want to get out of it, know yourself?
  • The only place where success comes before work is in the dictionary
  • Treat trading as a business and organize it as such

A whole book could be devoted to just the above section, this article cannot delve too deeply into what only you can answer for yourself. Please take the time to write down your rules and how you will address them. Your trading will evolve for the better I assure you. Here are my trading rules:

b) Trading rules

  • What type of trader are you, do you want action, stress etc?
  • Have a system that fits your trading style
  • Become good at one style, tweak it to suit you
  • Keep an open mind for each and every trade
  • Do not form opinions on the market, let it tell you where it’s going
  • Do not listen to the opinions of others
  • The words ‘hope’ and ‘wish’ are not in your trading vocabulary
  • Trade with money that is not indispensable, can you afford to lose it?
  • Learn to take losses as part of the business, learn from them
  • Take regular breaks from trading
  • Don’t over commit yourself, not too many open positions
  • Stand aside if you are not sure about a trade
  • Do not add to losing positions
  • Keep the dollar signs away, try to score points
  • Without fail, have a trading plan and trade that plan

That last point in the list brings us to our final section in honing our trading skills, and making a living from trading the currency markets.

c) System rules

Most aspiring traders hope to win on every trade. This is just not possible and there will be losing trades. It is a fact of trading life. It should not be taken as a failing of your rules or system when these occur. Rather, it highlights how good your rules are in dealing with those losses. The aim is to win more than you lose by utilizing the ‘edge’ described in the previous paragraphs. This ‘edge’ is gained by following your rules religiously, coupled with a trading system that suits your style. I have managed to do this after almost thirteen years of trading and using many differing systems, styles, and techniques. This section will address how you can add to your edge. As a minimum, your system should include the following:

  • What time frame you will be trading
  • The times not to trade
  • Clear and unambiguous means of entry into the trade
  • The reasons for entering and exiting the trade
  • What your means of exiting the trade will be
  • What size your stop loss should be
  • Will you use trailing stops
  • What position size will you use
  • Dealing with news announcements?
  • Will you scale out of the position etc. etc.

Each system has its own merits (or lack of) on dealing with the problems presented by the markets on a daily basis. Another example that I will mention is my own unwritten rule that I never trade on the first Friday of every month, this is when the NFP report is released and the markets tend to be a little too volatile for me. This is a lesson that I have learned the hard way (and I’ve paid for that lesson handsomely).

You can see, then, that your rules can evolve as your trading experience grows. You will also see that you will become more confident in your trading as you add rules to your overall trading system. Sometimes though these rules will be added after experiencing some drawback, or even a minor disaster, but this is all part of the learning process. You can bet your bottom dollar that the top traders amongst us have suffered a disaster or two along the way. The idea is to learn from those mistakes.

The problem is that it’s difficult to learn a lesson by the written word alone. Some form of interaction is the best way in order to firmly plant that lesson into our brain. This is where experience comes in. But, I firmly believe that these pages will get you started on the right path.

My own system has very clear rules on the items mentioned above, plus many more, keeping me out of trouble when my money is on the line. Before I even pulled up a chart onto my computer, I started by asking myself what I actually wanted my new system to address by making a list. I already had most of the General, and Trading rules in place, in fact I have added to them fairly recently, but I wanted a whole new set of System rules. These are the items on my list that enabled me to build a new, easy to use, profitable system:

  • First and foremost it must trade with the trend
  • Must be good for all currency pairs
  • Must be good for all time frames
  • Must try to get me into the big moves of the day
  • Must be user friendly
  • Must be simple
  • Must utilize more than one of my strategies on the same chart
  • Must keep losses to a minimum
  • Must enable decision-making at a glance
  • Must be able to use aggressive/non-aggressive tactics
  • Must have a higher time frame and trend confirmation
  • Must have clear and unambiguous accurate entry signals
  • Must also give clear re-entry signals into trends
  • Must tell me when to exit
  • Must have multi-timeframe trading on one chart
  • Must give an audio alarm when signals are generated (important)
  • Must stop me from overtrading (very important)
  • Must stop me from fishing for tops and bottoms (very important)

Don’t take any part of this set-up lightly, as it will definitely pay dividends at a later stage of the whole process. The last two items on the list had cost me dearly in the past. The audio alarm is to call me to the computer when a trade presents itself, this way I do not need to stare at the screen all day. No more missed opportunities. Perfect.

The biggest task was to convert those ‘must haves’ into a working system that enabled me to trade for a (profitable) living. This has been achieved after no small amount of work, blood, sweat, and tears! In some small way, I hope that I have given you a base on which to build your own trading strategy. If you prefer to by-pass that final stage and use a KISS system that has been created from the points listed above, then please drop by my website to view for yourself.

I wish you all the luck in your trading endeavors.

Dave Atkinson is the founder of the Black Dog Trading Program, full time forex trader, and mentor to the members of the Black Dog Trading Forum. During the trading day, and quite often at weekends, you’ll find Dave on the forum. He prides himself on the support given to his fellow Black Dog traders. Dave may be contacted from his website at http://www.blackdogprogram.com

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