How many trades have you made in the past month? 4? 40? 400? The answer will tell me a lot about you and your market development. There is an extremely high correlation between the number of trades or the number of trades per month and the equity curve.
In other words…
Show me a steadily increasing stock curve and it's almost certainly a low-frequency trading approach. Show me a steadily falling stock curve and it will likely find a much higher trading frequency behind it.
Today's lesson uses hypothetical examples, but is very, very real in its theory and its learned concepts. I will show you my trading style and lead you through an example of a three-month trading routine that looks very similar to my personal trading routine from month to month. I will show you how I trade, how I think, how often I trade, plan risk / reward and much more. So, let's start this party …
The 4-trade per month trading routine …
My overall trading philosophy and my life philosophy is: less is usually more, simple is better. I consider myself a minimalist, especially in terms of trade. There are some very good reasons why I am doing this. I have found over time and experience that the more you try to squeeze money out of the market, the less you earn.
This means that I prefer a low frequency trading approach because the reality is that this is what works. Traders who trade a lot or trade a day tend to increase the cost of spreads / commissions as well as losing trades. Not to mention that trading involves very real mental costs. It is incredibly psychologically stressful and tiring, which involves both physical costs for you and relationship costs for your friends and family.
You have to understand that:
- You DO NOT have to act a lot to make a lot of money.
- You do NOT have to win a super high percentage of your trades to make a lot of money.
Once you understand the two points above, your opinion about trading will change. Keep in mind that with an exercise rate of only 50% you can put your trading account GOOD in the black (profitable). How do you do that? With risk return; by ensuring that your risk reward is about 2 to 1 on average (double risk). The power of risk reward is often poorly understood and underused by most traders, causing them to lose money. If you don't take advantage of the risk-reward ratio, you have to win a very high percentage of your trades to be profitable, and that is very difficult.
Now let's look at an apparent / hypothetical set of 3 months of my trading routine. These are not actual trades that I have made, but the charts you see are good examples of highly likely price action signals that I am teaching in my courses that you can and should learn how to trade. Some of the trades in the spreadsheets (the losers) are completely fictitious and only there for example.
Here are the results from month 1:
You will notice in the table below that 4 trades were closed in about a month. Note that there were 2 lost trades and 2 winners, but the winners were both 2R, which means 2 times the risk, i.e. a 2: 1 risk reward. The result was a positive 2R win. So if you risked saying $ 500 per trade, you would have made a profit of $ 1000 this month, which would not be bad if you made only 4 trades, which would require VERY little time on your part.
The first winner in the table above was a nice pin bar sell signal at an important resistance level, as shown below. This trade continued to make 2R. However, note that it took 2 to 3 weeks for the game to play from the entrance to the exit. You have to be patient to act this way. That's why I always say that you make money with patience. Most traders jumped into and out of the market during these two to three weeks, losing money and chewing their accounts with spread fees, losing sleep and generally just getting frustrated and angry. Not you! You trade with the 4 trade method per month!
The second winner was also a nice 2R win. Assuming a bullish tail reversal bar that was formed after backing up for support, as shown in the table below.
Remember this is hypothetical. An experienced price trader could easily win over 50% of his trades in a few months. I am trying to show you that even with a low hit rate (even below 50%) you can make good money with a reasonable risk return. Traders get into trouble by making stupid trades and taking stupid losses that were unnecessary, risking too much and then losing too much and generally deviating from their trading plans.
Here are the results from month 2:
You will notice in the table below that 4 trades were closed in about a month. Note that there were 2 lost trades and 2 winners, but the winners were 3R and 1R, which means triple risk and single risk. The result was a positive 2R win. So if you risked saying $ 500 per trade, you would have made a profit of $ 1000 this month, which would not be bad if you made only 4 trades, which would require VERY little time on your part.
The first gain this month was an interesting counterfeit pattern that formed on the S&P500's daily chart within the latest out of control trend this market was in just before recent volatility set in. You will find that here and here we have a 3R winner could have won a 4 or 5R winner. If you get a big winner like this per month, if you trade only a very small number of trades like me, you can literally pay MONTHS for losing trades and be in the black. Are you beginning to understand why I love this trading style so much? You could be on the move throughout the life of this trade. You don't have to worry about your screen, you just have to set and forget your trades …
The next win this month was an inside bar breakout game. Note that this was only a 1R win, with the reason that a key resistance level came into play before 2R would have been hit. So the logic would dictate that we exit before the key level instead of hoping and praying that price breaks break through. It's okay to sometimes take 1R winnings with you when it makes sense. Just don't do it regularly, or you'll have to win a much higher percentage of trades to make money.
Here are the results from month 3:
You will notice in the table below that 4 trades were closed in about a month. Note that there were 2 lost trades and 2 winners, but the winners were both 2R, which means 2 times the risk, which is equivalent to a 4R win. The result was a positive 2R win after you subtracted the two 2 1R losers. So if you risked saying $ 500 per trade, you would have made a profit of $ 1000 this month, which would not be bad if you made only 4 trades, which would require VERY little time on your part.
The first winner in this group was an obvious pin bar buy signal for gold that formed in an event area that we discussed in detail in our daily trade setup newsletter as a buy zone before this pin was formed. This was a quick reversal of this trade, where a 2R winner was won just 2 days after entry.
The second winner in this group was a bit cheeky; an inside bar sell signal at an important resistance level. I usually like inside bars as breakout games to continue the trend, but in certain situations they can be used as a counter trend, which I explain in more detail in my price promotions course. Note that we got a nice 2R win with this setup, which ended last Friday with a bullish pin bar from support, which could potentially lead to a buying opportunity (updates can be found in our daily member comment).
Important points to bring everything together:
- Minimalist approach to trading (and life) is what I love and what works for me in the markets. It will work for you if you allow it.
- All trades were made on the daily chart timeframe. That's how I act 90% of the time and you should. Stop wasting time and money in short periods of time. This is an important reason why you lose.
- If you don't stick to your predictive trading plan, none of that will work. You can't be trigger happy. You have to act like a sniper, not like a machine gunner! It takes time, training and patience to get good at it, like everything else.
- You must BELIEVE in your trading advantage and that it will take effect over time. You have to act like a baller, not like a scared trader who wants to make money.
The bottom line of just 4 trades per month across 3 different one-month periods:
I want you to promise that you will try this starting tomorrow: you commit to ONLY 4 trades a month. Try it. Leave me a comment below with your promise to commit to this experiment, then contact me here after a month and tell me your results. I firmly believe that not only will you see your trading results improve, but will also awaken to a completely different trading stance, which I hope will change the direction of your trading career entirely.
Now imagine you combine the simple trading approach I outlined here today with the ability to find entry signals for price promotions with high probability, set strategic stop losses and profit targets, manage your money properly, and cool, calm and staying collected (like me) teaching my students). Once you've learned how to bring all of this together, you should be unstoppable, far less stressed, hopefully more profitable, and most importantly, a happier and healthier lifestyle.
What do you think about this lesson? Please let us know in the comments below!