Roadmap to

success

IT'S ALL ABOUT TRADING iFXBROKERS.COM

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 There may be
disagreement about
who said it - but most
agree if you fail to plan
you plan to fail
Benjamin Franklin

ROADMAP TO SUCCESS
METATRADER 5 USER GUIDE 2
 Content
THE TRADING PLAN 5
WHY YOU SHOULD USE A TRADING PLAN 5
THE ADVANTAGES OF A TRADING PLAN 6
THE TRADING PLAN. AS GOOD AS YOU MAKE IT 6
KNOW YOUR TRADING SELF 6
KNOW YOUR MIND 7
FIT TO TRADE 7
INCOME TARGETS 7
SETTING YOUR TRADING GOALS 8
MARKETS, INSTRUMENTS AND TIMEFRAMES 8
FINANCIAL VEHICLES 8
SELECTING THE RIGHT BROKER 9
AND TRADING PLATFORM
BEFORE THE MARKET OPENS 9
Be professional. Be prepared. 9
Be informed. 9

THE MOST IMPORTANT THING. 10

MANAGING YOUR MONEY
Your risk appetite 10
Overall market risk 10
Sector risk, broker risk and hardware risk 10
Strategy risk 10
The likelihood of a successful trade 11

THE TRADE SETUP 11

THE RISK-REWARD RATIO 11
YOUR RISK PER TRADE 11
WHERE TO PLACE YOUR STOP LOSS ORDERS 12
KNOWING WHEN TO STOP 12
LARGE DRAWDOWNS AND PROFITS 12
YOUR APPROACHES TO MONEY MANAGEMENT 12

ROADMAP TO SUCCESS 3
LOCKING IN PROFITS 13
DECIDING YOUR POSITION SIZE 13
EXIT STRATEGIES 13
LOSING TRADES: EXITING BEFORE YOUR STOP 14
WINNING TRADES: THE WARNING SIGNALS 14
STRATEGIES AND ENTRIES 14
YOUR CHOSEN STRATEGIES 14
YOUR SETUPS 14
IDENTIFYING YOUR SETUPS 15
SIGNALS THAT TRIGGER YOUR ENTRY 15
THE MARKET CLOSES. WHAT NOW? 15
RECORD THE DAY’S TRADES 15
TRADING ACCORDING TO YOUR PLAN. DID YOU? 15
YOUR TRADING JOURNAL 16
SELF-CONTROL, DISCIPLINE 16
AND SELF-ASSESSMENT
BACK AND FORWARD TESTING 16
AFTER A WINNING TRADE 16
AFTER A LOSING TRADE 16
YOUR TRADING EDUCATION 17
SPECIFIC MARKET CONDITIONS 17
AND TRADING PLAN APPROACHES
EVALUATING YOUR PROGRESS 17
CALCULATING PROFIT AND LOSS 18
THE TRADER’S PHILOSOPHY 18
YOUR TRADING RULES 19

ROADMAP TO SUCCESS 4
 The trading plan
The amateur trader relies on intuition rather than a trading plan, guided by ‘feelings’ and
‘instinct’. This trading process is emotionally motivated and inevitably it results in costly
mistakes and financial losses. Obviously, no one can predict the future or the markets.
The one thing you can control is your response to these outcomes. Without a regularly
updated trading plan, you are almost always guaranteed to lose money.

A trading plan is a comprehensive, personalised financial management scheme that

includes your risk tolerance level and your profit goals, your market views and
experience. Updated daily, it enables you to objectively track your trading activity and
monitor your performance.

It is dangerous to emulate another trader’s approach, however successful, because

you are different individuals. It is highly unlikely that copying someone else’s trading plan
will work for you. Regardless of the level of trading expertise in various market
conditions, a trading plan is always beneficial. It enables seasoned traders to easily
identify new trading options and increase profitability.

In a nutshell, your personalised trading plan is determined by a set of principles that

control every aspect of your trading.

Why you should use a

trading plan?
The amateur trader relies on intuition rather than a trading plan, guided by ‘feelings’ and
‘instinct’. This trading process is emotionally motivated and inevitably it results in costly
mistakes and financial losses. Obviously, no one can predict the future or the markets.
The one thing you can control is your response to these outcomes. Without a regularly
updated trading plan, you are almost always guaranteed to lose money.

A trading plan is a comprehensive, personalised financial management scheme that

includes your risk tolerance level and your profit goals, your market views and
experience. Updated daily, it enables you to objectively track your trading activity and
monitor your performance.

It is dangerous to emulate another trader’s approach, however successful, because

you are different individuals. It is highly unlikely that copying someone else’s trading plan
will work for you. Regardless of the level of trading expertise in various market
conditions, a trading plan is always beneficial. It enables seasoned traders to easily
identify new trading options and increase profitability.

In a nutshell, your personalised trading plan is determined by a set of principles that

control every aspect of your trading.

Major financial decisions should never be emotionally driven. Trading is no exception to

this rule but when money is at stake, the temptation to act irrationally increases
exponentially. The trading plan provides a blueprint to be followed clinically, without
allowing emotions to intrude in the decision-making process.

ROADMAP TO SUCCESS 5
 The advantages
of a trading plan
It reduces trading anxiety, stress and It prevents irrational, emotional trading
impulsive trading decisions

You can easily identify errors and make A good trading plan achieves consistent
informed changes profitability

It engenders self-control and self-discipline It counters the likelihood of bad trades

The trading plan. As good as

you make it
The length of your trading plan is entirely up to you. It should be a comprehensive
document, comprising clearly demarcated sections. It is much easier to amend one
section than to redo the entire plan because you omitted something significant in the
first place. Initially, the inexperienced trader should have a lengthy document but as
s/he gains experience, certain areas become second nature. It is not unusual for the
document to range between five and 20 pages. Before you begin writing your trading
plan, you need to identify what trading type you are.

Know your trading self

Ask yourself whether intrinsic or perceived value is key to price variables to determine
whether you are a fundamental or technical trader. This impacts on how you read
the market, the time frame you select and how you mitigate your risk.

Your ability to use stop losses is determined by the degree of certainty in the market, the
extent of the loss and whether it can be prevented. Discipline is the key to managing risk,
and should underpin all the elements of your system, including triggers, stops, profit margins
and position sizing.

Consider what you will trade according to market movement: for example, trend
continuation patterns, reversals and ranges. Your interests will determine your
strategies, while your setups are guided by a focus on breakouts, bounces or retreats.
Your trading personality determines the intricacies of your entries. Would you trade
a breakout before it transpires, or wait for the break, retreat and test the support
before re-entering when the support is determined to be safe? Whether you are an
aggressive or a cautious trader, there are advantages and disadvantages to both.

ROADMAP TO SUCCESS 6
 Know your mind
Ask yourself some questions. Why do you want to become a trader? What are your
expectations? If you are motivated by a get-rich-quick mentality or think that trading is
uncomplicated and straightforward, you should reconsider your decision. Write down
an honest list of reasons why you want to be a trader.

New traders experience euphoria or debilitating fear, depending on their success or

failure. Most new traders are unprepared for this psychological assault on their
emotions. Seasoned trading professionals achieve an enviable state of calm,
irrespective of whether they are making a profit or sustaining a loss. Professionals
agree that knowing your own psyche is the single most important factor for success.
Knowing your psychological makeup and your responses to winning or losing is crucial.
This knowledge enables you to capitalise on your positive characteristics and
circumvent the negatives.

ARE YOU A DISCRETIONARY TRADER (WHOSE TRADES ARE BASED ON

CURRENT MARKET CONDITIONS) OR A MECHANICAL TRADER (RELYING ON
ALGORITHMICALLY GENERATED SYSTEMS)?

The number of hours you devote to your daily trading determines whether you should
trade over the long term, medium term or short term, influencing your choice of position
trader, swing trader or day trader. For example, day traders remain online for the entire
duration of the trade whereas position traders may set aside an hour a week. It is
important to identify and list your perceived strengths and weaknesses. If you struggle
to do this, paper trading will allow you to investigate each trade. Given time, a pattern
will emerge, and you will easily identify your strengths and weaknesses. Write these
down to determine how you will use your strengths to overcome your weaknesses.

Fit to trade
Your state of mind is key to your success. Just like an athlete, you should be well rested,
healthy, calm and mentally alert. Do not trade if you are tired or distracted – external
issues will negatively impact on your decisions.

Income targets
The primary motivation for trading is to make money. This is not determined by some
nebulous dream of financial independence, but by clearly defined targets based on
back and forward testing strategies. Calculate your income targets and reduce them
to manageable daily or weekly activities.

FOR EXAMPLE, YOUR INCOME TARGET MAY BE STRUCTURED AS FOLLOWS:

My income target is to achieve an annual return of (percentage) which translates into

(amount) per annum. The maximum drawdown permissible on my account is (percentage).
This translates to a monthly income of (amount), the weekly average being (amount),
which, calculated daily, means (amount) per day. Therefore, my daily target represents
(percentage) of my total equity.

ROADMAP TO SUCCESS 7
 Setting your trading goals
Trading goals play an essential part of a well-constructed trading plan. Trading goals
outline where you are going, how you are going to get there and what motivates you.
Trading goals should include a focus on becoming a better trader and how you will
achieve this. As your trading skills improve, it will be easier to achieve your trading
goals. It is important to write, in detail, what you will reward yourself with once you do.

An annual trading goal outlines the knowledge and advanced skills you will acquire in a
year. It includes additional training, best trading practices and proven strategies that
are constantly monitored and updated. This is broken down to monthly, weekly and
daily targets. These are skills based goals, outlining the rewards you will enjoy with
every successful step of the way.

Markets, instruments and

timeframes
In the first place you need to decide on the market you intend trading, the available
instruments and the reasons behind your choice. Experienced traders focus on a
restricted number of markets and instruments, whereas new traders are tempted to
try everything.

Will you confine your trades to a specific basket of stocks or will you trade across the
exchange? For example, as a forex trader, you need to decide how many currency pairs
you will trade, and why. The same situation applies when trading futures: how many
markets will you trade and why?

Once you have decided on whether you will be an intraday, swing or position trader, you
need to hone in on the timeframes of your chosen category. You need to make clear
decisions regarding your choice of timeframes and the number. For instance, a day
trader might use a one-minute timeframe to enter a trade, a 15-minute timeframe to
assess the trend during the trade and a five-minute timeframe to exit.

Financial vehicles
Whichever vehicle you use to trade, you need to be aware of the advantages and
disadvantages of spread betting, shares and CFDs. Spread betting is very popular with
new traders, although it is virtually impossible to profitably day trade using this method.

ROADMAP TO SUCCESS 8
 Selecting the right broker
and trading platform
Your broker and trading platform are critical to your performance. Select a broker that
has been recognised by the industry and who has a reputation for excellent customer
service. Compare the product offerings, spreads and commissions with other brokers.
The financial product you prefer (forex, options, CFDs, spread betting or direct access)
will most assuredly influence your choice of broker.

As a novice trader, you probably have limited financial resources to fund your trading
account. As such, spread betting is a viable place to start. Bear in mind that there is a
limited selection of brokers offering CFDs. Avoid opening an account with a future’s
broker. Choosing the right instruments and the right broker provides the opportunity to
gain confidence and experience without risking all your money.

It is important that the trading platform offered by the broker offers the features you
need and that you are comfortable using it. The final consideration concerns the data
and software at your disposal. If technical analyses influence your trading decisions,
ensure that your data provider and charting platform deliver what you require. If not,
you could be billed for features that you do not need and will not use.

Before the market opens

BE PROFESSIONAL. BE PREPARED.
It is essential to establish a daily routine to prepare yourself for the day’s trading – and
to stick to it. For instance, these should include an analysis of the previous day’s trades
and an updated review of open positions, targets and stops. Unless your plan specifically
includes holding positions overnight it is unwise to do so, unless you are a swing or
position trader.

An analysis of the previous day’s trades will quickly reveal whether or not you stuckto
your trading plan and how that is likely to impact on the current day’s trading. Of course,
it is imperative to assess the day’s market conditions and strategise accordingly,
outlining a selection of likely trading instruments. You need a detailed plan of your trading
day, in hourly increments. If you don’t plan each hour, you could miss opportunities or
divert from your plan. Having a structured hourly blueprint ensures discipline, focus and
maximises your trading time.

BE INFORMED.
Check for important news reports that could impact the markets, monitor index futures
and find out when key economic reports are to be released. For example, the Michigan
Consumer Sentiment Index forecasts changes in the US national economy, assesses
near-time consumer business attitudes and outlines empirically based consumer
expectations.

You are now ready to scrutinise the day’s trading opportunities. Scan your proposed
trading instruments and split the outcomes according to your proposed strategies.
For instance, as a day trader, you may have devised a retracement strategy in order
to trade the open, tailed by a breakout strategy 30 minutes later, and concluding with
a reversal strategy during the evening’s trading session.

ROADMAP TO SUCCESS 9
 The most important thing.
Managing your money
If you do not use sound risk and financial management principles, you will most certainly
lose money – a lot of it.

What is the difference between risk management and money management?

Risk management is concerned with minimising losses through a considered

assessment of market conditions, risk-reward, probability and other factors including
stop loss orders. Money management is devoted to maximising profits through trailing
stops and adjusting position sizes. In other words, risk management concerns minimised
loss, while money management concerns profit.

YOUR RISK APPETITE

Your risk appetite must be aligned with your trading style. According to author David S
Nassar, his book How to Get Started in Electronic Day Trading (2001) teaches the reader
how to play with fire without getting burned. He says think of the stock market as a
nuclear reactor – the more you are exposed to radiation the greater the chance of getting
burned. Market risk is measured by the amount of time you are in the market. It could be
seconds, minutes, hours, days or weeks. The longer you are in the market the greater the
chance something will go wrong. Therefore, the trading style that keeps you in the longest
can also be the riskiest” (Nassar 2001). Of course, this opinion is not shared by professional
traders who favour medium to long term positions. Some eschew the unpredictable
trading impetus of Nasdaq stocks intraday due to the high risk.

OVERALL MARKET RISK

You need to establish the maximum financial amount you are prepared to risk at a time
and be able to survive the loss. These particularly concern factors that are unpredictable;
market crashes, terrorist attacks and the like. Many traders will not risk more than one
percent of their equity on a single trade, limiting their exposure to a total of five percent
on all open positions. If all your open positions are stopped out concurrently, your account’s
drawdown would be five percent. An unpleasant situation to be sure, but not financially
ruinous.

SECTOR RISK, BROKER RISK AND HARDWARE RISK

Sector risk is contained by limiting the number of positions in a specific sector.
Broker risk, albeit unlikely, occurs when your brokerage firm is bankrupted, and you
are unable to close your positions. Do you have a backup broker? Hardware risk,
associated with Murphy’s Law of technology, refers to when your computer or laptop
crashes. Always ensure that your mobile phone is fully charged and that you have
stored all relevant numbers and addresses on it.

STRATEGY RISK
The only certainty of the markets is that they are in a state of perpetual flux. A previously
profitable strategy may well not be so at present, or in the future. It is suggested that, as a
long stop, you prepare for the time when your proven, profitable strategy fails.

This can be assessed by measuring the major percentage drawdown on each of your
trading strategies. Multiply the percentage by 1.5 or 2 and stop trading immediately if the
drawdown exceeds this figure.

ROADMAP TO SUCCESS 10
THE LIKELIHOOD OF A SUCCESSFUL TRADE
Most traders concentrate on the risk-reward ratio when they assess the specific risk of
a proposed trade. Without considering probability, the equation is of no use. For example,
if you calculate the risk-reward ratio at 4:1, this indicates a gain of 80 points at the risk
of only 20. In theory this resembles an exceptional option. If the trade’s probability
of success is 20%, this translates into a loss probability of 80%.

The trade setup

It is imperative that the trade setup is detailed, precise and explicit since the spot setup
concerns trading with real money in real time. Once you have defined the setup, you are
able to back and forward test it to establish its likelihood to succeed over its probability
to fail. It is essential to be aware of and isolate several factors that will most certainly
impact on the outcome. Study historical charts to establish the commonalities of these
variables at the back-testing phase. For a long position, the setup may have a greater
likelihood of success if it emerges above a round number instead of appearing slightly
below it. Remain calm and undistracted by specifics of the trade including entry trigger,
stop loss placement and exit strategy when you delineate and test the setup. Should the
setup be precisely defined and thoroughly tested, you should be able to accurately
calculate the sum of profitable and unprofitable trades. Referred to as the ‘success ratio’,
this can be translated into a percentage by dividing the number of successful/profitable
trades by the overall number of trades, successful or not, and multiplying the figure by 100.

The risk-reward ratio

In order to calculate the risk-reward ratio, it is important to establish the success (or
probability) ratio and the Sharpe ratio. The Sharpe ratio identifies the average amount
made through profitable trades against the average amount lost on unprofitable trades.
To convert this to a percentage, divide the average amount earned from profitable
trades by the average amount gained and lost, and then multiplied by 100.

Should you have a success ratio of 2:1, this translates into a 66% probability for success.
If your Sharpe ratio is 1.5:1, it means that your risk of $40 should make you $60 on
successful trades. Simply put, the success/probability ratio indicates that you will
succeed in two out of every three trades, while the Sharpe ratio indicates that, of the
two successful trades, you should make $60 twice, equating $120. Of the three trades,
the single losing trade costs you $40. You risked $40 on the three trades, ending with
gain of $80. If the net amount gained is divided by the risk amount, the risk-reward ratio
is 2:1. Of course this result is determined by strictly sticking to the predetermined setups
in your plan – and rigorously forward and back tested to establish their likelihood of
success.

Your risk per trade

Even if you can accurately predict market direction 99% of the time, placing 100% of your
equity on each and every trade, you will achieve astounding results – until the one time
you fail and lose everything. The majority of trader’s risk no more than 1% of their total
equity on any single trade, although in the case of a small account, the amount may rise
to 3%.

ROADMAP TO SUCCESS 11
 Where to place your stop
loss orders
Without exception, every trade you undertake must be subject to a stop loss, to make
certain that all losses are cut short. To safeguard yourself, ensure that it is a concrete
pending stop order in the market, not some nebulous idea in your mind (unless you are
a highly experienced trader). The stop loss order should be market controlled rather
than determined by a fixed percentage of your equity. For instance, if your trade
pullbacks and your strategy determines that you place your stop loss slightly beneath
the low of the pullback, then that is where it must be. Modify the number of contracts
or shares to guarantee that you remain within the risk per trade boundaries.
The smaller the account, the more difficult this is to achieve.

Knowing when to stop

Knowing when to stop trading is determined by self-discipline and shrewd risk management.
Knowing when to stop prevents you from trying to recoup losses on a losing day and to
prevent you from becoming avaricious and reckless on a winning day. Without exception,
your trading day should typically conclude as follows:

ONCE YOU HAVE REACHED YOUR PREDETERMINED TARGET ON A WINNING

DAY, YOU STOP;

ON A LOSING DAY, ONCE YOUR DAILY STOP IS REACHED, YOU STOP TRADING;

AND WHEN NO TRADING OPPORTUNITIES MANIFEST, YOU DO NOT TRADE.

Large drawdowns and profits

Entirely separate from your daily living expenses, the money you trade with must be money
that you can afford to lose, money that should not impact on your lifestyle in any way.

Your trading plan should detail the level of additional credit funds to your account in the event
of large drawdowns, and how you will debit the account when it contains substantial profits.

Your approaches to money

management
Firstly, you need to clearly define your objectives.

As your profit increase, consider whether you would increase the per trade risk,
broaden your activities with other trading strategies or change your trading approach
completely.

As your profits increase, consider whether you would increase the per trade risk,
broaden your activities with other trading strategies or change your trading approach
completely.

ROADMAP TO SUCCESS 12
 Locking in profits
There are advantages to using a trailing stop to lock in your profits once the trade is on
the favourable side of break-even. You allow profits to run, acquiring an ample amount
from the expected move. In a worst-case scenario, you will end with a scratch trade,
but will not have lost anything.

Deciding your position size

Your position size is predetermined by the constraints of your risk management rules
and should never be exceeded. Capitalise on other options, such as trend continuation
strategies that have a high likelihood of success and are suited to a hard-line position
size at entry. Reversal strategies may have a lower probability of success but are
suitable when your risk management rule prescribes a more cautious position size at
entry. Once the trade and the new trend are established, it may be beneficial to add to
the position at specific continuation signals. You may accumulate a large position size
while minimising your risk exposure.

Exit strategies
Exit strategies, controlling profit and loss, are far more important than entry strategies
and more difficult to execute correctly. If you are trading multiple strategies, each
individual strategy will be subject to different signals determining your exits. If you are a
discretionary trader, your dynamic exit strategy should be market controlled. It should
not be a rigid, mechanistic strategy enacted on each and every trade, regardless of
market conditions.

For instance, should you follow a mechanical strategy based upon a 3:1 risk-reward
ratio and you risk $30.00, you exit when the trade shows a profit of $90.00 or a loss of
$30.00, whichever arises first. Should your success ratio exceed 26%, you will make a
modest profit over time. It is likely that a substantial number of the losing trades will
show some gains before moving against you and triggering your stop. On the other
hand, a few of the winning trades will realise gains exceeding the $90.00 when you
used the mechanical exit to close your trade.

A dynamic, market-controlled exit enables you to take some money off the table
offered by the eventual losers and let the big winners run, realising a larger quantity of
the increased gains on offer. These extra profits can change an overall trading strategy
from one that barely breaks even into one that is extremely profitable.

ROADMAP TO SUCCESS 13
 Losing trades: exiting
before your stop
Some strategies are confined to the exact point when the stop loss is triggered and not
before. This approach allows for a margin of flexibility that can potentially translate into
a profitable trade. On the other hand, your losing trades are always subject to your
predetermined maximum and may even exceed this amount in the case of a bad fill.

Winning trades:
the warning signals
You must be prepared for the times when it is advisable to make a quick exit and know
which warning signals to look for. If you have a winning trade, close half at the first
target or the first identified weakness, letting the balance run. The success of your
entire strategy can be determined by how you exit the balance of a profitable trade,
irrespective of how well you have planned and executed your exit strategies.

Strategies and entries

Strategies are determined by market conditions, the time of day and the timeframe within
which they are traded. All strategies fall under one of three clusters, namely breakouts,
retracements and reversals. Within these groupings, are a number of recognised strategies
such as the ‘Sonic Boom Dive’ devised by Van K Tharp and Brian June (2001). By far the
most successful strategies have been devised by individual traders who keep them under
wraps because they give them their edge.

Your chosen strategies

Many professional traders recommend using at least two trading strategies. One that is
suited to a trending market while the other is suited to a non-trending market. That said,
the professionals recommend that new traders establish and test one strategy
to ensure that it is profitable, before embarking on another.

Your setups
A setup determines the set of characteristics enabling you to accurately identify a high
probability trade, before your entry trigger is hit. You should simplify the elements
of your setup so that they are easily identified and assessed in real-time. Your setups
must be clearly defined and rigorously tested to ascertain their probability of success
before you commence live trading. If you fail to define and test your setups you will ruin
your trading plan and everything you have worked for.

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 Identifying your setups
Identifying your setups is relatively easy if you are trading one or two instruments.
Should you be trading stocks listed on the Nasdaq or NYSE, this is more complicated.
You will have to scan all the listed items on the exchange to determine which setups
you will require.

Signals that trigger your entry

A good trading plan is unambiguous, clear and meticulous. What you should try
to achieve is the following: if other traders read your plan, they would conform
to the price and timeframes of your trades.

The market closes. What now?

At the end of the trading day, win or lose, it is tempting to put your feet up and relax. A good
trading plan will delay this. First you need to scrutinise both winning and losing trades to
identify your successes and, critically, your mistakes.

Record the day’s trades

Professional traders routinely make a comprehensive record of all their trades. You should
cultivate the habit of recording entries, exits, stops, targets, S&R levels, open/close, daily
high/low, the timeframe of trades and what you have learned.

Trading according to your plan.

Did you?
Many traders avoid an assessment of whether they have traded precisely to plan. It is
foolish and downright dangerous to avoid this question because it outlines two crucial
issues: namely, flaws in the trading plan and self-discipline. Should you be experiencing
either problem, it is essential that these are immediately resolved.

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 Your trading journal
Emotional trading is another danger. If you feel that your temperament is not suited to
unemotional trading, consider using a mechanical strategy. Keeping a trading journal is a
valuable tool because you can safely vent your anger at mistakes/losses and express your
feelings about your trading triumphs/profits.

Self-control, discipline and

self-assessment
There is one way to render an exceptional trading plan (detailing entry/exit variables
with astute risk and money management strategies) completely useless. If you lack the
will or self-discipline to implement your plan, it does not matter how brilliant it is. It is fairly
easy to stick to the plan when your trading is successful but be prepared for the times
when you fail: this is the true test of sticking to the trading plan. Just as you promise
yourself rewards for sticking to the plan and receiving positive results, what penalties
will you impose on yourself for breaking your own trading rules?

Back and forward testing

Test your trading strategy rigorously before you begin live trading. As a mechanical trader,
there are many online programmes to assist you. If you prefer a discretionary approach,
back-test as comprehensively as possible and then forward-test safely by paper trading
your strategy. Obviously paper trading does not replicate real-time trading, but it is indicative
of the success or failure of your fundamental strategy.

After a winning trade

After a winning trade and before rushing straight into the next trade, you need to analyse
your previous performance. Are you satisfied that you did everything correctly and
according to plan? Was the trade well planned and carried through?

Yes, it was profitable, but could you have improved on the margin while sticking to your exit
strategy? You are energised and ready to trade again but your next trade could be a fiasco.
If you are not relaxed and calm, you should rather take a break from trading.

After a losing trade

After a losing trade, you also critically analyse your previous performance. If you stuck to
your trading plan, ironically you should see a losing trade as a successful trade. Everyone
experiences dud trades at some point. Ensure that your losses are small and maintain your
confidence. Do not subconsciously chase after your losses.

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 Your trading education
There is nothing like doing - and as in most cases, practical trading experience is key to
gaining experience. It is foolish to gamble on experience only. Study to rapidly increase
your knowledge and skills. Read as much as you can, watch professional traders in action
and keep abreast of online economic predictors. There is an enormous volume of trading
information available. Be selective and focus on what concerns you most at the specific
time.

Specific market conditions and

trading plan approaches
Oftentimes price action reveals breakouts with volumes one day, and the following day
the stock returns to consolidation. If you have traded on the breakout, your response is
dictated by the market. If the uptrends are strong and stable, ‘buy high, sell higher’ but
breakouts associated with choppy fluctuating markets can be a trap. Use the ‘buy low,
sell high’ ethos. There is no one single strategy applicable to all aspects of the market.
As such, you need to be alert to market fluctuations and adapt your strategy
accordingly.

Evaluating your progress

Without a comprehensive trading plan with clearly defined objectives, it is impossible to
assess your progress.

What is your aim? Do you want to supplement your income, make trading
your main source of income or put yourself in the position to become
financially independent, without affecting your lifestyle?

You need to calculate the amount you require on a daily, weekly and monthly basis.
Every situation involves varied risk tolerance, time frames, position sizing and holding
times. You define your objectives and design a trading plan aligned with your objectives.
The purpose of your trading plan is twofold: it is a tool to realise your objectives, and a
yardstick to measure your results.

If you are not succeeding, you can easily determine where the problem
lies. Is the plan flawed; or are you not adhering to it?

A system trader’s parameters are strictly defined, whereas a discretionary trader is

more flexible. This translates to different back-testing methods. A system trader
depends on software that simulates present conditions based on previous data,
whereas the discretionary trader’s situation is more convoluted. For instance, it is
difficult to assess whether you would favour the previous setup and how current
factors may impact on your decision to trade.

ROADMAP TO SUCCESS 17
 Calculating profit and loss
Whether your profit/loss calculations are factored over a specific time period or a
specific number of trades, adhere to a running statistic in order to monitor previous
performance and identify market fluctuations.

The trader’s philosophy

The trader’s philosophy outlines the target market and the concepts underlying what
the trader must do to succeed.
Define the trader you are and the kind you Psychological aspects of trading: your state
want to be; of mind and addressing deviations;

Outline the timeframe, specify the type of Expenses associated with business
markets in terms of trend and range; equipment: scanner, software, additional
training courses, subscriptions and
Plan your trading system, including trading publications;
signals, triggers, stops and profit targets;
Optimising your performance through
Risk control methods, definitions and research to create the best trading plan that
parameters; works for you

ROADMAP TO SUCCESS 18
 Your trading rules
Your trading rules are highly personal and must be relevant to you.
However, there are some trading rules that apply to all traders.

Protect and preserve your capital.

Novice traders enter the market thinking how much money they will make, whereas
professionals focus on how much they stand to lose and how to minimise the probability

Always set a stop loss.

Before opening a new position, set a stop loss and never use a mental stop loss unless
you belong to the thoroughbred trading stable: you are highly experienced and are
consistently profitable. The stop loss is crucial to all risk management strategies.
It is imperative to set one.

Cut the losses short and let the profits run - by always having a stop loss.
If you change your mind about a trade, exit without waiting for your stop. Letting the
profits run is down to money management and an excellent exit strategy.

Trade what you see, not what you feel.

Focus on the market, your indicators and charts not your intuition

Never chase your losses.

If a rudimentary mistake led to your losses and you trade to recover them, this results
in further losses and emotional responses.

Do not average down.

Averaging down is a tactic used by long term buy and hold investors and should never
be used by traders. If a trade goes against you, exit as quickly as possible.

Keep impeccable records.

It is imperative that you keep records of your trading activities, profit, loss and the
underlying reasons for your trading activities. Use a journal to record your feelings.
These records make it easy to determine whether you are adhering to your trading
plan or not.

Self-discipline is easily monitored through your records.

If you do not address discipline issues, these will impact on your trading performance.

Keep things simple.

High achieving professionals utilise very simple strategies, rigidly maintain their self-discipline
and stick to their trading plan.

Plan the trade and trade your plan.

A clear, unambiguous trading plan is vital.

ROADMAP TO SUCCESS 19
 My Trading Plan
This is a living document. It may change as my
experience and knowledge of the markets increase,
and/or as the market(s) I trade
change and evolve

IT'S ALL ABOUT TRADING iFXBROKERS.COM

WHY AM I TRADING?

WHATS IS MY APPROACH?

WHAT ARE MY GOALS?

Monthly

Yearly

Long Term

WHAT ARE MY OBJECTIVES?

WHAT TIMEFRAMES WILL I TRADE?

WHAT SETUPS WILL I TRADE?

ROADMAP TO SUCCESS 21
ENTRY RULES

WHERE WILL I PLACE MY STOPS?

EXIT TAKE PROFIT (AND/OR) TRAIL-STOP RULES:

RISK MANAGEMENT RULES

PRE-MARKET ACTIVITIES OR ROUTINE:

POST-MARKET ACTIVITIES OR ROUTINE:

WHAT TOOLS WILL I USE FOR MY TRADING BUSINESS?

ROADMAP TO SUCCESS 22
REVIEW PROCESS:

CONTINUING EDUCATION:

DISCIPLINE & MINDSET NOTES:

MY GOLDEN RULES AND/OR TRADING COMMANDMENTS:

SIGNED DATE

ROADMAP TO SUCCESS 23
Disclaimer:
The information contained in this guide solely constitutes an education communication based on information sourced to support the subject matter.
The information supplied is not aligned with legal requirements endorsing the independence of investment research; furthermore, it is not subject to any
prohibition on dealing ahead of the dissemination of investment research. These are not necessarily endorsed by iFX Brokers Holdings (Pty) Ltd. It is
forbidden to reproduce or further disseminate the contents of this communication without the written prior consent of iFX Brokers Holdings (Pty) Ltd.