Good Trading Strategy

High Success Rate and High Rewards Risk Ratio

Very High Success Rate with Moderate Reward Risk Ratio

A Good Trading Strategy need to have at least 50% Success Rate with a 1:1 Rewards Risk or High Success Rate with Moderate Reward Risk Ratio or Moderate Success Rate with High Rewards Risk Ratio. Having such Trading Strategy, a fixed position sizing is good enough.

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Above examples shown the results of Good Trading Strategy with fixed position sizing in a long run.

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(Please note the examples shown are solely for illustration purpose.)

Trading For a Living

After going through the recent recession, many felt that working for people is no longer secure and many are talking about trading for a living, be it in stock trading or forex trading.

Many had failed but there are some who succeeded.

What are the Factors that separate those who succeeded and those who failed?

1. Trading Plan
- Come out with a realistic trading plan. i.e. setting yearly, monthly, weekly or daily target.

2. Trading Psychology
- Able to understand how markets work and how to position yourself in the market.

3. Good Money Management
- Know how to manage your capital which able to last you in a long run.

4. Good Trading Strategy
- Know when to enter and exit with good success rate and risk rewards ratio.

5. Traits of the trader
- Hard working (willing to put in effort to learn and re-learn)
- Discipline (Able to follow as per plan)
- Independence (Able to depend on ownself for decision making)
- Confidence (Confidence in what you are doing - after went through the trial stage)
- Patience (Willing to wait for the good opportunity for entry and exit)

and most importantly - need to have the Passion for Trading.

Money Management and Trading Strategy

In trading, different traders have their own different trading style, but as long as it works for them, then that are good strategies.

Some emphasize more on Money Management while some on Trading Strategy but both need to be part of the trading.

Those who emphasize more on Money Management usually have a ok strategy but with the Strong Money Management, a 40% success rate with 1:1 risk reward ratio can help them to make profit from the market in long run.

Those who have Good Strategy with more than 50% success rate and at least a 1:1 risk rewards ratio, or at least 50% success rate with more than 1:1 risk rewards ratio, they just need to have a constant fixed position size will help them to make profit from the market in long run as well.

How about a Good Strategy combined with a Strong Money Management?

That could be an ideal case. But to me, if you have a good trading strategy, you are always in an upper hand. It is easier to master Money Management than a Strategy.

Those who trade mainly base on Money Management usually need a bigger capital. Here is one "Sure Win" trading if you have a strategy with 1:1 risk rewards ratio and low success rate, but a large capital. It's all about Statistics, just like how casinos or brokers make their money.

Example: base on 20pips stop loss and take profit (This is base on making profit with just one winning trade, you can also come out with formula which enable you to make profit with two continuous winning trades, this will bring down the incremental of the lot size)

Trade...Lot size...Win/Loss...P&L/trade...Overall P&L
1............0.1.........Loss........-USD20.......-USD20
2............0.2.........Loss........-USD40.......-USD60
3............0.4.........Loss........-USD80........-USD140
4............0.8.........Loss........-USD160......-USD300
5............1.6.........Loss........-USD320......-USD620
6............3.2.........Loss........-USD640......-USD1260
7............6.4.........Loss........-USD1280....-USD2540 8...........12.8.........Win........+USD2560...+USD20

But Personally, I prefer to trade using a Good Strategy with high success and at least a 1:1 risk rewards ratio or a high risk rewards ratio with at least 50% success rate.

As for Money Management, I'm using a constant lot size base on the capital available. Here are the example of my position sizing base on capital available:

Capital.........Lot size (Max.)
USD2k...........0.2
USD5k...........0.5
USD10k..........1
USD20k..........2

Note: This is provide you've mastered a good trading strategy.

Forex Trading

Currently, I'm trading in USD/JPY and EUR/JPY pairs which suit my timing (Asia).

Using some high probability setups for most of my trades, the results have been consistently good. The method that I'm using is not that straight forward though, as in order to further increase the probability of winning the trades, I need to take into consideration of some factors such as timeframes, trends, time of trades, risk and return etc. But the effort put in is definitely worthwhile.

Comparing using a simple method with lower probability of winning to a more complex method with much higher probability of winning, I would rather choose the more complex one as the main objective of trading is not about simplicity but is about increase the probablity of winning as many trades as we can. To me, a complicated method can become simple if we keep practicing it.

Practice makes perfect!