Trading From a Phone?

This is a stereotypical topic that you will see around social media, “trade to make a side income”, “make money on the beach from your phone”. So, is it actually possible?

Today I’m going to cover the apps that are available and the tools that are available to enable you to trade from your phone. Do I recommend it? Let’s see…

The three areas to focus on when looking to trade from your phone are the following;

  • Risk Management
  • Analysis
  • Execution

Risk Management

The first way we can go about managing our risk is by using websites such as Admiral Markets Risk Calculator . This is a simple and effective tool but we do have an option for an app on our phones, ‘Stinu’ is a risk calculator app that is very user friendly. This used to be free but they now require a small subscription fee of $14.99 per year with a 7-day free trial.

 

Analysis

Tradingview is probably the most user-friendly app you can use for analysis on your phone, it has most of the functions available just as on the web version but the issues that arise from analysis on a phone are the inability to view enough data on the screen and if we are completing our analysis on Tradingview on a different broker to the one we are executing on we run the risk of inaccuracy of price.

 

Execution

We execute on MetaTrader 4 or MetaTrader 5 on the trading floor through Admiral Markets as our broker. This is also possible on a phone as you can download MT4 or MT5, you can then execute on the app once you have connected your broker and entered your login details.

 

 

Conclusion

Therefore, in theory, yes, it is possible to trade from a phone. There are applications for each component necessary to trade and it physically can be done. Does that mean, however, that we recommend it? Absolutely not, these apps are useful in times when you may be out of the office or away from your desk setup, but even then, I would advise against making decisions away from your desk setup. These apps are useful should you need to trail a stop or if you needed to check to see if your lot size is accurate, not to initiate a trade from.

Until next week, safe trading!

Jake

Trading Flag Patterns

This week we are going to take a look at another well-known retail trading pattern. Like many of these patterns it’s knowing when to execute them that plays the significant factor within the success rate rather than the pattern itself working every time. The two types of flag patterns we will focus on today are of course the bullish flag pattern and the bearish flag pattern. These patterns are simply an impulsive move in one direction, followed by a period of consolidation before the second impulsive move in the same direction.

What we can see from the diagram above is a bullish flag pattern and a bearish flag pattern, however, a key point to note within these patterns is how the period of consolidation is actually counter to the trend. Within our ‘Bull Flag’ we have an impulsive move to the upside and then a period of consolidation where the market is making lower lows and lower highs, and vice versa for our ‘Bear Flag’. This is a very important factor to note during these flag patterns.

So, how do we trade these?

Flag patterns have a high probability of duplicating the first impulsive move on the second leg. We can, therefore, measure the distance of the impulse move and duplicate this for the second impulse. See diagram below.

 

In this example, the impulse move was 433 pips, we can therefore have a target of 433 pips from the low of the consolidation period of the flag pattern.

A simple way to trade these patterns is to wait for a break and retest of structure within the consolidation period, with a stop below the low of the consolidation and using our target of the initial impulse move. See example below, vice versa for a bearish flag pattern.

This is a fairly simple but effective market pattern trading with the trend and trading with momentum can often lead to quicker resolutions. This has been a sneak peek into the Advanced Trader Course , details on specific strategies are covered within the course if you would like to cover these aspects in more depth.

Until next week, safe trading!

Jake

 

 

KB Backtesting Guide

This week’s blog will be focussed on walking you through how we backtest here on the trading floor and the various tools we use. In the first section we will run through TradingView, this is a great platform that I have used in the past and is one of the most user-friendly backtesting tools I have used. The second section will be devoted to backtesting on MetaTrader4 (MT4), this has its drawbacks but also has a lot of positives over that of TradingView.

 

Section 1 – TradingView

Pros:

  • User-friendly
  • Abundance of tools and indicators
  • Effective replay tool between different time frames
  • Screenshot links

Cons:

  • Potentially unreliable data
  • Unrelated data to your live account
  • Adjustable zoom
  • Subscription fee

 

As we can see there are many features which make TradingView a great tool to use for backtesting historical data in order to determine the profitability of our strategy. The drawdowns to this platform, however, include potentially unreliable data. If you backtest on a different broker to the broker you use for your live trading you may achieve different results to your backtesting data. What may be a Daily Engulfing candle on Oanda may not be on an FXCM chart or on Admiral for example. There is also a monthly subscription fee to TradingView, although it isn’t that expensive compared to other platforms such as Forex Tester 5 . Even though the wide variety of tools is a positive aspect, I would also consider this as a potential drawdown, why? Simply because having all of these tools at your disposal only makes it more likely for you to include them on your chart. I am a big believer in as limited indicators and tools as possible in your trading, it only results in an overload of unnecessary information. For these last few reasons, I will backtest and gather my data on MT4, it is a little bit more ‘clunky’ and takes a period of time to get used to, but for the more reliable data it takes precedence for me.

 

Section 2 – MetaTrader4

Pros:

  • Reliable data to live trading
  • Fixed page fill
  • Simple screenshot feature to record results
  • Simple F12 to skip to next candle function
  • Completely free

Cons:

  • No replay function
  • More time consuming

 

As my live account with Admiral Markets is connected to MT4 I am able to gather stats and backtest on the exact same data I will be trading live. This adds another degree of accuracy to my results that you can’t get from TradingView. Let’s take a look a screenshot of GBPUSD on MT4 and we can walk through a few useful functions to help you backtest with this platform.

 

 

There are two key functions I have highlighted within this screenshot. These allow us to backtest and scroll back through the historical data. If you ensure that (1) is unclicked, you will be able to track back through past data, the second extremely useful function is (2), a little grey triangle along the bottom of the page along the date and time axis. The way this work is as follows, whatever time frame you are on, if you drag this arrow to a specific date and time and then choose a different time frame the chart will automatically jump to this point in time. This enables us to jump back to a specific point in time that we’re interested in and allows us to jump down from the daily time frame to the hourly time frame at the right place.

If you are still unable to see (2) on your chart you may need to change you grid colour settings. Simply right click on the chart and choose properties, these are the following settings that I use if you need a guide.

 

If you wish to take a screenshot this can be completed by right clicking on the chart again and selecting “Save As Picture”, if you ensure “Post image online in MQL5 Charts service and get the link” is ticked then it will open up the chart online and you will be able to save the link to your spreadsheet.

 

 

Once you have your chart opened to a certain point in time in the past you can simply view one candle at a time by pressing F12 on your keyboard, for some keyboards you may need to hold “Fn” and press F12 at the same time.

The final point to note is the fixed page fill I mentioned as a positive to MT4 backtesting, this may be a controversial standpoint but a big mistake made by many new traders, especially when using TradingView, is zooming so close in to the recent price action. This isn’t possible on MT4 and forces you to stay aware of past market structure which could have an impact on the trade you’re looking at. It forces you to look at the bigger picture.

I hope you have learnt some useful tips from this blog post, if you need any more help with MT4 or TradingView you can contact me on Instagram or Telegram and I am available within the KB Trading Community.

Until next week, safe trading!

Jake

Profitable With a 30% Strike Rate?

This week we’re going to take a look into risk management. Risk management allows us to have an edge in the markets even if we only win 30% of our trades. Imagine losing 70 trades out of 100 and still being in profit, it’s not actually as crazy as it sounds. We have touched on this a little in the past within a previous blog, but we’re going to look into this in more detail here.

First of all, we need to understand what risk management encompasses. The two key areas we are going to focus on today are the risk-to-reward at the trade outset and trade management once in a trade.

Risk-to-reward at trade outset

Different strike rates require a different average R to stay breakeven. Let’s take a look at the average R required for your strike rate:

If you have a strike rate of 50%, then your minimum average R to be breakeven is 1

If you have a strike rate of 40%, then your minimum average R to be breakeven is 1.5

If you have a strike rate of 30%, then your minimum average R to be breakeven is 2.33

If you have a strike rate of 20%, then your minimum average R to be breakeven is 4

 

We can see from this that simply incorporating a minimum risk-to-reward of 1:3 with a strike rate of 30% would actually enable us to be profitable over time. Take a look at the example below of an account size of £50,000 risking 1%.

In this first example you can see that when we lose, we lose £500. But if we win, just like in the second example below, we win £1,500.

 

 

If we did this 10 times and only won 3 trades, therefore having a 30% strike rate we would have the following results:

Losses = 7 x £500 = -£3,500

Wins = 3 x £4,500 = +£4,500

Overall = +£1,000

If we could simply increase our strike rate to 50% this would result in +£5,000 after 10 trades.

I wouldn’t recommend simply targeting 3R as the market doesn’t care where you get in or get out, the market will move based on liquidity. The biggest tip, therefore, would be to choose your target, stop and entry based on your strategy and if the risk-to-reward isn’t relevant to your strike rate then I would have this as filter to not take the trade.

 

Trade Management

Finally, even after seeing how we can still make money whilst losing 70% of our trades, there is another way that we can improve on this edge, trade management. If we can keep the same strike rate and the same minimum risk-to-reward but we implement trade management so that when we do lose, we lose –0.7R on average instead of –1R we can have an even greater edge.

If we look at the above example again with a 30% strike rate but now every time we lose we only lose an average of -£350 instead, after 10 trades we would be up +£2,050

We can more than double our edge with simple trade management whilst keeping the same strike rate and minimum average R.

If you want to learn how we manage our trades check out the Advanced Trader Video Course  where details such as this and much more are covered!

Until next week, safe trading.

Jake

 

Optimal Trading Environment

In order to ensure longevity within your trading career you need to surround yourself with the right people and have a trading environment that is conducive to constant progression and improvement. Without either of these two aspects you will learn bad habits and your learning curve will plateau. The markets are ever changing, albeit they may be subject to a sort of cyclical nature, they are nevertheless, ever changing.

What trading environment is best conducive to success?

Without a doubt the best environment you can surround yourself in is a professional trading environment and more specifically a proprietary trading environment. I have personally experienced the drastic changes to trading part-time alongside full-time work to full-time on a proprietary trading floor learning from those with 5+ years as professional traders in the financial markets. From the daily routines, to personal development and organisation it was eye opening to see. It may not be possible for you to experience this full-time but with the information within these blog posts it will hopefully allow you to have a better understanding of what is necessary and vital to have success within this industry.

Of course, in-person teaching is extremely valuable but it isn’t essential, it will speed up your learning curve exponentially but that isn’t to say it’s not possible without it. Having experienced professional traders available to you at a click of a button is, however, essential. If you’re not already a member of the KB Community or another trading community then I would strongly recommend that this is something you invest in. It will enable you to see the day-to-day life of the full-time traders and ask any questions you have that you may not be able to easily find online. Within the KB Community & Analysis Pass  you also gain access to all shared documents including daily plans, backtesting templates and stat gathering templates, all of which are invaluable to building a consistently profitable strategy.

A huge part of the many benefits included with the KB pass is the daily live streams, this will allow you to see how the professional traders break down the live markets and allows you to gain that experience of the full-time environment of a prop trader without actually being there in person.

Whether you are able to surround yourself with professional traders or not, a consistent place of study/ work is essential to building consistency, if you take control over the simple aspects to your process this will lead to consistency within your trading. What do I mean by this? If you ensure you are analysing the same markets each day, at the same time, in the same place and with the same approach then consistent results within your trading are more likely to follow suit.

The next area to explore would be what do I need for a perfect trading environment?

The stereotypical image of a trader is someone sitting in a chair with four keyboards in front of them and eight screens, is this really essential?

In all honesty, it depends, if you’re trading a 10-million-dollar account then maybe, yes. However, it is by no means essential to have so many screens. All you really need is either a laptop or a computer with an internet connection, it really is as simple as that. Multiple screens will allow for an easier flow between spreadsheets and the markets but isn’t something that you must have in order to be profitable.

 

A final key point to note is how important it is to have a good quality broker. What constitutes a good broker?

 

The following two points constitute a good quality broker:

  • A broker that is regulated by a financial body such as the Financial Conduct Authority (FCA), this simply means that the broker treats all consumers in compliance with the strict criteria laid out by the FCA and means you can trade safely.
  • Reliable customer service, this is paramount, you need to be able to easily contact your broker should any issues arise.

At KB we would recommend Admiral Markets as this is the broker we all use and trust.

 

Until next week, safe trading!

Jake

 

 

 

 

 

 

Trading & Full-time Work

This week we are going to cover whether it is possible to trade alongside a full-time job or full-time studies. The aim of this blog isn’t to crush your hopes and dreams of trading part-time to make a side income or to tell you how it is impossible to do this thing alongside other commitments, but I will be honest and transparent. There will be tips and areas to focus on in order to make this goal achievable in the long-term.

The first thing to note is that trading is extremely difficult to master but can also be extremely rewarding, the reason 85-95% of traders fail is down to unrealistic goals at the outset or a lack of discipline to stick to the process. Trading part-time will obviously take you longer to reach consistency than it would if you could devote yourself full-time, but, where that isn’t possible, following the steps within this blog should allow you to build a rigid plan and trading system that will carve the path to success.

Education

Another standout factor to those that fail to achieve anything within this industry is a lack of education or poor-quality education. People have unrealistic expectations that without any education they could be looking at making the same, if not more, than someone who is a qualified engineer with a degree. Most degrees take 3-4 years and even then a lot of jobs will require a masters, another 1-2 years of studying. Why should trading be any different? If it was that easy to make money in the markets without any education, wouldn’t everyone be doing it?

If you want to cut your learning curve in half, then some good quality education is an investment in yourself. You can look elsewhere online but KB offers a fully comprehensive series of education that can take you from a beginner all the way to a consistent trader. If you are new to trading then check out our Trading Forex Beginner Course , if you are a little more experienced in the market then check out our Advanced Trader Course  for more specific and detailed strategies. You can also purchase both courses at a discounted price with our Bundle Course option .

Have a plan

Having a plan relates to both a trading plan, consisting of every scenario from trading strategies to your broker’s number in the event of an emergency, and a study plan. Creating a plan for when you are able to study the education and test your strategies is paramount when trying to do this alongside something else full-time, create a realistic schedule of when you can study the markets and stick to it.

Ensuring you have a detailed trading plan is paramount to success, especially if you are only able to view the markets at certain hours during the day. Tip: You may want to consider implementing higher time frames into your strategy, trading from the daily or even weekly charts to understand your bias and then trading the four-hour chart for execution and management for example. You can’t expect to be able to manage on the 5-minute time frame with full-time commitments elsewhere.

Stick to a consistent strategy

Find something that is simple and easily adhered to, whether that be a strategy from a course or your own. Over-complicating a strategy will only make it impossible to stick to without fail. The simpler the better.

Realistic expectations

As we said at the beginning of this blog, this is the downfall of most people that give up and fail to make it within this industry. Having realistic expectations will keep you grounded.

So, what are realistic expectations?

Especially when learning alongside other full-time commitments some realistic expectations would include the following; trading demo for 12-18 months whilst you learn from the beginning and create a consistently profitable strategy, trading a small live account (funded or personal) for 6-months after this and then growing and/or achieving a larger funded account from here. A realistic goal for any consistent results would be around the 18-months to 2-year mark. Trading demo will allow you to make the necessary mistakes and learn from them without the pain of losing real money or blowing accounts at the beginning of your career and then with these lessons and market experience you will be ready to trade live capital.

Stop Losses

I almost feel that I shouldn’t need to mention this as I would expect this as a given. But, I will delve into this area anyway. Having a stop loss in the market is paramount, especially if you are unable to watch the markets all day. Capital preservation should be the priority of every trader compared to capital gain. The minute you stop thinking of how much a trade could make you and think about what is at risk and whether the risk is worth taking, then you will be that one-step closer to achieving consistency within your trading.

I hope you have found some use in this week’s blog, if you have any questions, you can contact our Facebook page on the website or our Instagram pages.

Until next week, safe trading!

Jake

The Traders Biggest Mistake

This one blog post could save you hours, days and maybe even months of unproductive work. There’s a big difference between working hard and working smart, I have definitely been guilty of this in the past. I have spent weeks investigating a new strategy or collecting data only for it to provide absolutely no edge and leave the data worthless. This is another factor altogether, there isn’t anything wrong with this necessarily, but following the advice within this blog post will hopefully save you days of mind-numbing testing and unrealistic results.

Let’s take a look at what we’re going to cover this week, do any of these topics relate to you?

  • Errors in backtesting
  • Moving to live capital too quickly
  • Removing/ moving stop losses
  • Seeing negative news and stepping in short

Errors in backtesting

I have been guilty of this at the start of my trading journey and I have seen it many times within the past year with new traders on the trading floor. Backtesting results may look good if you have an 80% strike rate and have made 100R per year, but are they realistic? Can you repeat these results in the live market? I would say, no.

Are you letting your ego take over when backtesting? Does hindsight play a big factor in your results? “Oh yeah I would have actually done that because of this in the market, I would normally get out here but because it’s now gone to target I wouldn’t have got out”. The simple, and harsh truth of this is that you will never consistently make money in the live markets until you are completely honest with yourself in your backtesting.

Top tips for this section

DO NOT;

  • get out at the highest point at the wick of a candle because it came so close to target, this isn’t a repeatable action in the live markets
  • change what you’re doing each trade
  • be dishonest with yourself, don’t ever use hindsight

DO;

  • create a process that is easily repeatable in the live markets
  • account for spread in your backtesting (this can impact your R more than you care to imagine, not accounting for this is going to prepare you for disappointment in your live results)
  • take screenshots of your trades (live and backtesting)
  • review your data once finished (don’t just clap your hands together and congratulate yourself on your hard work for completing 5-years of data, look back over your screenshots and identify common issues, areas for improvement etc.)

 

Moving to live capital too quickly

Too many people want to make “quick” money in the markets by investing £500 into a live account. If you can’t make money on a demo account consistently then why would live capital be any different? You’re better off investing in some good quality education and then sitting an FTMO challenge for £130, if you really are consistent you will achieve a £10k account with this and will be making a lot more money than you would from trading with your £500 account.

Moving to live capital before you’re ready can hinder your learning curve as you may be afraid to make certain decisions. You need to lose and make mistakes in order to learn, embrace a demo account and embrace losing trades, learn from these and don’t make the same mistake twice. You will be consistently profitable before you know it.

Removing/ moving stop losses

What good is a stop loss in the market if you’re going to remove it when price comes near it? If you haven’t accepted the risk, you shouldn’t be in the trade. This stems from a few factors such as a lack of confidence in the setup, if this is also the case, then you shouldn’t be in it either. Take time away from the live charts to test your strategies and theories, it will allow you to be a lot more confident in your execution.

Seeing negative news and stepping in short

We have seen this too many times as well, you see some negative news for the dollar for example and you decide that $USDJPY must be a definite winner if you step in short. We are technical traders, we use fundamental news only as a secondary tool. The following quote summarises this perfectly in my opinion:

The market can remain irrational longer than you can remain solvent.

John Maynard Keynes

I would like to leave you with one final quote to end this week’s blog post, this is a great quote from Stan Weinstein that every trader should implement within their trading:

Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey …it will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey does it attack. That, to me is the epitome of    trading.

Stan Weinstein

Until next week, safe trading!

Jake

Pro Athlete Trading Tips

This week we thought it would be a great opportunity to look at how trading relates to professional sports. There are many more similarities than you would expect and one of the biggest aspects to this industry is the lifestyle it can bring; people see the high-flying traders who have the means to drive nice cars or go on holidays (albeit most of these people on social media are actually fake and are doing this to paint a lifestyle to sell a dream) but we’re excluding the fake gurus for this week as these aren’t the people we’re worried about.

What you see is the equivalent to watching someone like Tiger Woods, Lewis Hamilton or Roger Federer. All of these individuals make what they do seem effortless, performing at the highest level with what looks like ease, but what you haven’t seen is the daily practice for years and even decades to get to that point. And even the countless failures they have been through to achieve success.

I think the following quote from Mark Sptitz is the epitome of where people go wrong;

“If you fail to prepare, you’re prepared to fail.”

Let’s now dive into a few individual sportsmen and some of their best quotes and see how closely they relate to trading.

Tiger Woods – a professional golfer and one of the best to have ever played the game, Tiger Woods has won 82 official PGA Tour events and has won 15 majors.

“Winning is not always the barometer of getting better.” – Tiger Woods

How can we as traders relate to this?

I think this quote is a great reflection of what we do, you can be rewarded for doing the “wrong” thing, for example; holding a trade even though there was an exit signal and the trade then going to target. In this example you would be rewarded for poor management, you may get away with it this time but over the long run this will have a huge detrimental impact on your equity curve. A winning trade isn’t the barometer of good decision making. As I have said in previous blog posts, the process is more important than the individual results.

Lewis Hamilton – a seven-time world champion formula one racing driver, he also holds the records for the most wins, pole positions and podium finishes in the sport.

“What people tend to forget is the journey that I had getting to Formula One. There were plenty of years where I had to learn about losing and having bad races” – Lewis Hamilton

What can we as traders take from this?

You can look at professional traders and their amazing lives they live, but that is just traders at the top of their career, we cannot forget about all of the years that they failed to make money and all of the failures they had to push through to get to that stage.

I find this really helpful to think about during the tough times, if you can make it through these difficult times, the reward will be that much sweeter.

Roger Federer – all-time joint record holder of 20 Grand Slam singles titles in tennis.

“There’s no way around hard work. Embrace it.” – Roger Federer

Does this relate to trading?

Of course, just as much as any other quote this outlines what is necessary in order to achieve successful results in trading. If you are not willing to work hard then you will never achieve the results you dream to achieve, but if you do work hard then you might just survive in this game long enough to make something out of it.

The final quote I would like to highlight and leave you with is that from Michael Jordan:

“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.” – Michael Jordan

Use the failures to drive you on further, failures will only define you if you allow them to.

I hope you were able to take some motivation from the blog this week so until next week, safe trading!

Jake

 

Failure of a Retail Pattern

This week we are taking a look at how we capitalise on the failure of some typical retail trading patterns. This is not to say that these never work we play the failure every time, but knowing how to read the signs that the failure of the pattern is high probability allows us to capitalise on these in both directions.

Let’s jump straight into an example of $AUDUSD back in April 2021. The four-hour time frame isn’t generally one we will use to execute or analyse on but it can sometimes help neaten up the chart, in this example it allows us to clearly see the Head and Shoulders (H&S) pattern.

Moving onto the H1 time frame we get our first indication that this H&S could fail, a swing failure hammer at the neckline. What do I mean by this? We have a hammer that as pushed lower through the neckline of the H&S but has closed back above the level. Anyone with a sell stop on the neckline to get short playing on the successful completion of this pattern is immediately on the back foot.

The two horizontal rays on the chart highlight the highest point of the right shoulder and the head of this H&S pattern. Our first target would be the right shoulder and the second would be the head.

Even if you missed this entry there were still ample opportunities to enter, let’s take a look at some other entries that we could use to target the right shoulder.

 

Three possible entries:

1 – Swing failure hammer at the neckline of the H&S

2 – Bullish engulfing away from the neckline

3 – Hammer and a thrust away through structure, the entry here would be the retest of the H1 hammer head.

We have seen three possible entries to target the right shoulder but it doesn’t end there, even if you missed all of these entries, a play for the head of this H&S pattern is still valid.

 

A rounded retest of the right shoulder could provide a great trade up to the head to complete the failure of this H&S pattern.

If you would be interested in learning more about the strategies we trade on a day-to-day basis check out our Advanced Trader Course where we cover examples like this and much more.

Until next week, safe trading!

Jake

 

 

The Importance of Gathering Stats

Welcome to another blog post, this week we will be diving into the world of stats. If this is something that you don’t like, or don’t have an interest in, then I’m afraid you are going to struggle more than is necessary in your trading career. It can be a dull task gathering 4,5 or even sometimes 10-years of data but it can make a huge impact to your overall consistency, decision making and more specifically, your profitability.

Have you ever made a decision on gut feeling? Have you felt as though it was the right decision just because it saved you money or made you money? In contrast, have you ever made a decision and then hated yourself for it because it turned out to lose you money? The simple point to note is that you should never have these feelings because you should know, without any doubt, that every decision you make is because you have the stats and the data to suggest that the decisions you make work over time. For us on the trading floor, “over time” relates to a minimum of 4-years. If something hasn’t provided consistently profitable results over 4-years of data then maybe you shouldn’t be trading it. We touched on this topic of discussion a little in the first blog post on ‘Top Tips for Consistency’.

This also brings us nicely onto the first aspect to gathering stats:

  • The necessity of the sample size

Saying something worked 100% of the time because you gathered 4 results in the last month isn’t enough data to suggest that it will continue to work in the future. Whereas if you have 150 occurrences over the last 5-years of data that provides a stat of 60%, this is something you can use in your trading.

What are stats?

We can look at stats to provide general or specific data about a given setup or patter. Some of the aspects we may want to consider are;

  • Strike rate
  • Average distance travelled
  • Average drawdown
  • Average candle size; and
  • Most frequent day of the week

An important point to note, however, is that we need to go into these with an idea of what we want to find out. If you don’t have a purpose then you won’t find any benefit from general data. For example, you should be able to say at the end of it whether the idea you had has any merit. As we mentioned previously, it should be able to help your decision making because you now know how likely something is to occur. If you don’t know the probabilities of the outcome, how are you ever meant to decide whether it was the right or wrong decision?

What role do stats play in positive results and mindset?

Let’s take an example, this is a hypothetical stat that you shouldn’t take as fact.

Example

We have gathered the data that tells us that the chances of a daily bullish engulfing travelling 1x the range is 70% and the probability of the same bias travelling 2x the range is 20%. If our target turns out to be beyond 2x the range we may look to re-consider whether this is the right target for the trade. We have another valid target and an area of structure that lines up perfectly with 1x the range so we can use our stats to suggest that this may be the better option because we know that the chances of our first target being hit at more than 2x the range are only 20%. Whereas, our new target has a 70% chance of being tapped.

Having stats also allows us to manage our expectations accordingly. If we know that the setup we are looking at has a 45% strike rate and over the last 5-years has had a few periods where we have had 4 losers in a row, then after the third loser we can still remain confident in the setup because we know that this can be fairly common and it isn’t anything to be worried about.

Bonus

Finally, I want to leave you with something that doesn’t require hours and hours of mundane stat gathering but can help provide a realistic expectation within your own trading. The biggest issue we see all the time is chopping and changing strategies because traders get too caught up in the results from the present and recent past, by which I am talking about the last 3-6 months.

Below is a table that shows the probability of the number of consecutive losers in each 100-trade sample of your trading. Therefore, even with a strike rate of 55%, you still have an 83% chance of 5 losing trades in a row.

Sam posted a great video in the workshop group a couple of weeks ago on this topic, if you would like to view this you can access this and over 20 other educational videos within our Workshop Telegram Messenger group. This is available with our Community and Analysis Pass.

Until next week, safe trading!

Jake