How to Put Together a
Logical Trading Plan
With Boris Schlossberg
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How Professionals Put
Together a Logical Trading
Plan and Strategy
How to Think
Like a Hedge Fund
Manager
6 Key Steps
1. Define a Strategy
2. Money Management Rules
3. Test, Test, Test
4. Understand Performance
5. Understand Drawdown
6. Improvements
K
#1 Define a Strategy
• Fundamental or Technical
• Range/Trend Breakout
• Long Term, Medium Term, or Short Term
K
• What currencies will you trade?
➢ Majors vs. Crosses
• What time frame will you trade?
➢ 15 Min, Hourly, or Daily
• Will you hold the position after 5 PM ET?
• Over the weekend?
K
#2 Money Management Rules
• Multiple Entries/ Multiple Exits
• How low are you willing to buy?
• What risk-to-reward parameters?
• When to Take Profits, Trail Stops, Close the Position
K
#3 Test, Test, Test
• Everything needs to be tested!
• Coding – Easy Language
• Review the Charts, Look for at least 15-20 Examples
➢ What happened?
• Look at More Granular Time Frames
• Demo Trade
K
#4 Understand Performance
• What is the % of winning trades that you can expect?
• What is the Profit Factor?
K
#5 Understand Drawdown
• What is the average drawdown needed for the trade?
• What is the Biggest Drawdown?
• Is that on the close of the trade or intraday?
K
2:1 5:1 10:1
No Leverage Leverage Leverage Leverage
Starting Value $10,000.00 $10,000.00 $10,000.00 $10,000.00
1% Loss $9,900.00 $9,800.00 $9,500.00 $9,000.00
1% Loss $9,801.00 $9,604.00 $9,025.00 $8,100.00
1% Loss $9,702.99 $9,411.92 $8,573.75 $7,290.00
1% Loss $9,605.96 $9,223.68 $8,145.06 $6,561.00
1% Loss $9,509.90 $9,039.21 $7,737.81 $5,904.90
5% To 70% To
Recover Recover
$10,000 $10,000
Source: Technical Analysis of the Currency Market by Boris Schlossberg
Table of Doom
Amount of Equity Amount of Return Necessary to Restore to
Lost Original Equity Value
25% 33%
50% 100%
75% 400%
90% 1000%
Source: Technical Analysis of the Currency Market by Boris Schlossberg
#6 Improvement
• ‘What Works’ and ‘What Doesn’t’
• When are the losing trades usually done?
• Avoid News
• Limit to Trading Specific Time of the Day
• Cutting Losses Early
How do Real Money Managers Perform?
• Top money managers risk no more than 5% of equity.
• Professional money managers (try to) beat the S&P,
which averages around 8-12% annually.
• How much do I hope to make every day, month, and
year?
These examples are being used for educational purposes only.
Past performance is not necessarily indicative of future results.
Let’s Get Down To Business
Trading Plan = Business Plan
If you don’t write it, you won’t do it.
Professional Traders
3 questions to ask on every trade:
• What is my reason for the trade? (Entry Strategy)
• How much am I looking to make? (Exit Strategy)
• How much am I willing to lose?
Don’t just believe what you are taught!
TEST ,TEST, TEST !
Time to Get Down and Dirty…
How Do We Develop
Trading Strategies?
How Do We Find Trading
Ideas?
By Watching
Speculation is Observation
Humans Are Visual Beings –
That is Why We Respond To
Chart Patterns
Is History a Good Guide to
The Future?
History Doesn't Repeat Itself
But It Rhymes
Mark Twain
How Do We Find Rhymes of
the Currency Market?
We TRADE!
There is no Substitute for
Practice
We Learn Through Playing
and Experimenting
But we ONLY Learn When We
Trade Live
Not
DEMO
Live Trading Has Two Benefits
1. Real Market Conditions
2.True Psychological Reaction
The Real Value of a Strategy
is Not Whether it Works or
Not But Whether You Will
Use It
Almost Any Losing Strategy
Can Be Made Positive
Almost Any Winning Strategy
Can Be Made Negative
Steps to Successful
Strategy Development
Trade Live
Define Initial Rules
Refine Visually on Charts
Test Logically in Excel
Code or Pay Someone to
Code
EXAMINE Machine Results-
NEVER TRUST THEM
Understand FAILURE
Refine Again
Trade Live
Reassess Every 6 Months
What Are The Key Questions
You Have To Ask Before You
Trade?
1. Am I Trading Intra-day or
Daily?
Do You Have the Time To
Watch the Screen for at Least 6
Hours/Day?
If No, then Trading Daily
Signals is Your Best Bet
2. What Pair Will I Trade?
(GBP/JPY <>! EUR/CHF)
GBP/JPY
Average High-Low ~=150
EUR/CHF
Average High-Low ~=20
3.What Times of the Day
Will I Trade?
Q3 Will I Trade Maximum
Liquidity?
1200-1600 GMT
4. How Many Times Will I
Trade?
I Like to Trade
1. 5 Times Per Day
2. 5 Times Per Month
5. What Much Risk will I
Take?
What Hurts MORE?
1. Losing 200 Pips
2. Losing Out on Making
200 Pips
Professionals Risk Between
1%-2% of Account
6. When Will I Analyze My
Trades?
(Performance Review)
Once per Week is Best
Once per Month At Least
Top Trading
Lessons
Know Yourself
Know Your Trade
Revenge is NEVER sweet
Source:
gamespy.com
Don’t lose your cool —
always use a stop
Tops or bottoms are only
evident in hindsight
The last 25 per cent of a position
can make a disproportionate
contribution to your overall profit.
It ain’t about how hard you
hit, it’s about how hard you
can get hit and keep moving
forward. That’s how winning
is done!
— Rocky Balboa
Source:
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