Why is it STILL so hard to figure out consistently profitable trading?
You've read all the blog posts.
…and watched all the YouTube videos.
After talking to hundreds of professional traders over the years, and doing everything under the sun to upgrade my trading psychology, I've come to understand that there's a fundamental and repeatable process behind becoming a successful trader.
I've never seen this roadmap published anywhere online, so I've created one for you.
If you prefer the text version, it's provided after this video.
[toc]Like most things in trading, the roadmap is deceptively simple. Remember that simple and easy are two very different things.
Sure, there are some great guides out there that give you pieces of the puzzle.
I've read most of them too.
However, if you want to understand the entire process from beginning to end, then here it is…
The Consistently Profitable Trading Flowchart
Alright, here's the roadmap.
I'll let you take it in for a minute, then I'll explain it in greater detail.
When people are learning to trade, most of them go from: Create a Trading Plan > Add to Toolbox.
That means that they watch a YouTube video, then open a real-money account and trade it live.
I've done that too, I'm not judging.
But then they proceed to lose money…and wonder why.
Well, it's because they skipped all of the steps in between!
Worse yet, they give up on the trading strategy and learn another one….and another…and another.
They just bought a ticket to ride on the Trading Silodrome.
Here's how to avoid that…
Step 1: Understand Your Trading Personality
Before you even begin with the roadmap above, it's super helpful to understand your Trader Personality Profile.
If you are the type of person to overanalyze these types of things, just do your best and go with it. Understanding 60% of your trading personality will get you infinitely further than obsessing over getting it 100% right…and never starting!
Once you have a trading personality profile hashed out, then you are ready to begin with your trading plan.
Step 1: Create a Trading Plan
Now let's dig into the roadmap/flowchart.
The first step on the flowchart is to Create a Trading Plan.
Learn a trading plan that works with your Trader Personality Profile.
Many traders fail because they may understand their trading personality, but then they jump on the bandwagon of the last trading strategy that they saw on YouTube.
For example, they may be best suited to swing trading, but they get all excited about the latest day trading strategy they saw…and create a day trading plan.
Doh!
If day trading doesn't match your temperament and lifestyle, then you are probably going to fail at it.
Strategies are available everywhere, most of them for free. The dirty little secret in trading success isn't the trading strategy itself.
…as most educators want you to believe.
The secret to trading success is finding strategies that match your personality, then following a repeatable process that helps you master that strategy…or figure out exactly why it won't work for you.
So now find a trading strategy that works with your personality. We have published some here, but you can use any strategy that you found online.
Just Get Started
Seriously, just learn the trading strategy and write down the rules.
Get your free trading plan worksheet here.
You are only testing at this point, so don't worry about making the plan perfect or profitable. You will learn as you go.
Once you have a concrete plan written, then it's time to start testing.
Set Your Goal
…but before you get to work, set a goal for how much you want to average per month with your trading strategy.
There's no “realistic” value here, but remember that it's much, much, much harder to develop a trading strategy that makes an astronomical return every month.
Like Biggie said…
“Mo' money, mo' problems.”
Now I don't necessarily believe that, in the way that he meant it, but there are certainly a set of different challenges when you are trying to make a lot of money quickly.
The primary one is you need to risk more to make more.
…and most traders cannot stomach those large drawdowns. Could you stomach an 80% drawdown to make 500%?
Most traders cannot.
If you don't know where to start, aim for an average of 1% per month.
Also keep in mind that you may not be able to hit that goal with one currency pair. But if you trade 20+ currency pairs, then that can add up.
You can also use other techniques, like pyramiding, to boost the profits of profitable trading strategies.
The key is to get to a profitable trading strategy as quickly as you can.
Alright, moving on…
Step 2: Backtest the Trading Plan
Some trading strategies cannot be backtested. If that's the case for you, then move on to Step 3.
But if your strategy can be backtested, fire up your favorite backtesting software and start testing. If you have never backtested, you can read our free beginner's guide here.
You can use a variety of software to backtest and you can do either manual or automated testing. Just pick the one that works best for you.
Here are a few backtesting tools that you can use:
- NakedMarkets
- Forex Tester
- TradingView Bar Replay (with an Excel sheet)
- Metatrader 4 and 5 (with an Excel sheet)
Remember to test it EXACTLY as it's written on the plan. There's no “freestyling” it.
You need to know how well that plan works.
That won't happen if you keep changing up the rules!
This is another common failure point when people are learning to trade.
Don't fall into this trap…stick to the plan.
Test one currency pair on the timeframe that you plan to trade live.
Work on only one trading strategy at a time.
Step 3: Review Your Backtesting Results
Sweet, now you have some data to look at. It helps to look at it with other traders.
Do the results line up with your goals?
If not, tweak your trading plan and test again.
…and again.
…and again.
…until you have something that is in line with your goals.
{Gasp} am I actually suggesting that you have to do work?
Yes.
Trading is not as easy as most people on the internet make it out to be.
Much like a professional athlete, you need to put in the practice time.
Once you have something that works for you, then it's time to do some Beta trading…otherwise known as Forward Testing.
Step 4: Consistently Profitable in Forward Testing?
Now you are going to trade your strategy in live market conditions. It's highly recommended that you do this in a demo account or in a very small ($1,000 or less) nano lot account.
CAUTION: Do not trade your strategy with full-sized risk yet. If you do, you will set yourself up for failure.
This is another point where most traders frequently fail. They trade their full-sized account and expect the same results as in their backtesting.
There are still some kinks that you need to work out in your strategy.
On top of that, when you pile on the additional stress of losing significant amounts of money, that can lead you into a downward spiral really quickly.
You may not be able to recover from this negative trading psychology.
So keep the pressure off and focus on the process. If you can practice without worrying about the money, then you will be much better off later.
Journal your Forward Testing trades and track your results.
Step 5: Results Hit Your Goals?
If yes, then congratulations, you are ready to move on to step 6!
If not, then there's a specific review process that you should go through.
Let's get into that…
Trading it the Same?
Are you trading the strategy the same as in your backtesting? Review your backtesting trades and analyze your charts.
Also look at the time of day and day of the week that you are entering your trades.
There could be trades that you could take in backtesting, that you cannot take in Forward Testing. This could be due to work, family obligations…or that pesky thing called sleep.
If you cannot compensate for these factors, then you probably have to start over and tweak your original trading plan.
There might be an easy fix to this issue and if you can identify it, then adjust and keep Forward Testing.
Can't identify the issue?
Then the issue is probably psychological.
I'm not being sarcastic.
Our beliefs color everything we do.
Limiting Beliefs?
Can you identify any limiting beliefs that are holding you back?
Here are some common beliefs that you may be saying to yourself subconsciously:
- I'm too smart to backtest, I can just trade it live
- I don't deserve to make a lot of money trading
- Rich people are douchebags
- I'm afraid to succeed because people will see me differently and I will lose friends
- I'm not smart enough to do this
- I can't picture myself as successful
If you do find these voices in your head, don't beat yourself up over it. Your greatest ally in trading is the ability to forgive yourself.
Now that you have forgiven yourself, it's time to dig into why you feel this way.
Obviously, this isn't something that you can figure out overnight. It will probably take some time to work through this.
…and that's OK.
Rest assured that once you can figure out some of these mental “gremlins” in your trading, that will also help you in other parts of your life.
You can read about what I've tried (and what worked for me), in this blog post.
All limiting beliefs come from some sort of trauma. It could happen in your childhood, in adulthood or even before you were born.
Now, when your Forward Testing is successful, it's time to step up to the plate…
Step 6: Trade Live
Now it's time to trade your strategy in your full-sized account.
But you aren't out of the woods yet…
The process is similar as in Forward Testing.
You want to find out if there are any live trading issues that are standing in the way of consistently profitable trading.
Trading in a full-sized account can create additional pressure and may cause you to trade differently.
If your results are different from your testing…again, figure out the following:
- Are you trading the strategy the same as you tested it in backtesting and forward testing?
- Are there any limiting beliefs or negative trading psychology that are stopping you from consistently profitable trading?
Work these things out and consult your trading journal often.
You may need to create a new trading plan. This doesn't happen a lot, especially if you got this far, but it can happen.
Accept it as part of the process.
Step 7: Add this Profitable Trading Strategy to Your Toolbox
Once you are able to demonstrate consistently profitable trading in your full-sized live account, you can officially add it to your trading toolbox.
Congratulations!
Now you can choose to master another strategy, or go trade your one strategy from a beach somewhere 😉
Final Thoughts on Consistently Profitable Trading in Forex
This may seem like an easy process, but it can be very difficult.
Again, simple is not necessarily easy.
The keys are to stick with the process, work on one thing at a time, and don't skip steps.
I know, I know…it's tempting to jump directly into live trading.
But following this process will give you more practice, more confidence in your trading strategy and ultimately leads to consistently profitable trading.
If you don't believe me, listen to these interviews.
What do you think? I would love to hear your comments below…
