Lessons #4, How to setup my trading plan before to start trading

First, we take Metatrader 4 as software to trade.

To download Metatrader 4, we advise FXDD or SwissQuotes.

SwissQuotes : https://en.swissquote.com/forex/forex-trading-platforms/metatrader-4

Fxdd (*):

http://www.fxdd.com/us/en/downloads/?platform=mt4basic

You can open a live account with FXDD here :
https://fxdemo.fxdd.com/olreg/applyonline/LiveRegistrationInfoAction?ibrokerCode=thbrainmt&languageId=en_US

Just install it, open a demo account with 10’000 USD on it. With FXDD and/or SwissQuotes, you can open a demo account directly from the software.

You are now one step before to start trading with a demo account. Before to start trading, you need to check your aptitude to be disciplined.

Yes, you will set up a trading plan. You will write it and you will follow it.

You will never be outside it. Never.

After a while, you will check if the trading is good and you will change the rules of this first trading plan: let’s say after 1 month if you play each day then 20 trading sessions (more or less).

This trading plan needs to be SIMPLE and state about :

1 – The Risk you are taking at one moment.

2 – The Rules to enter the market and to exit

3 – The Instrument you are selecting to play with.

4 – The Winning and Losing rules: when you exit the position after how many % of gain you do it or looses.

5 – Your « rest » score. Define after how many loses you stop trading and how long you will stop

1- The goal, at this step, will be to find a very simple rule to enter in the market, a very simple rule to exit

2 – Money management to support it

3 – Repeat 1- and 2-

OK ?

The Rule to enter and exit.

We don’t do rocket science. We will focus on the trend and price- only the trend.- in H4.

When we have the trend in H4, we search in H1 the same trend and we enter in the market

I will explain to you how to do it later in the article.

For the moment, we do money management

OK, 10’000 USD is 10’000 pips with a lot size of 0.10.

You have 10’000 to spend.

2% is a « medium risk » we will try to lower when our benefit will grow.

But for the moment, 2% , it’s 0.02 x 10’000 pips = 200 pips with a lot size of 0.10 pips

You can offer you a lose of 200 pips  with 0.10 pips

Means 4 positions with 50 pips each ones with a lot size of 0.10 USD, 2 positions with 100 pips or 1 position with 200 pips.

You can also divide the 0.10 pips into 2 of 0.05 (micro-lots) of each one 200 pips ect..every combinations are possible.

This famous « risk » of pips will be setup using StopLoss – we will see that later

The problem to set up very large stop loss – and 200 pips is large – is that you will need to reach a high average of gain and/or high winning rates to recover your loses with an average winning again low. It takes time, you need also to let your trades running several days or week.

Then playing manual, 100 pips with 0.10 is good then our trading plan will allow 2 positions at the same time with 0.10 USD lot size, 100 pips of risk (stop loss).

20 days of trading for one month.

We will enter on Monday/Tuesday and try to close before Friday night (on GMT+2) – trying to avoid the gambling game of the weekend with the interbank private game which creates « GAPS».

With a loss of 100 pips,

We aim a winning rate of 60% of the trades – our first goal – , then we need to aim at winning average  gain (remember the hope of gain formula) :

Benefit = % of winning rate X Average Winning Rate – % losing trades X Average losing trade.

Benefit needs to be > 0

Then 0.6 * x – 0.4 * 100 > 0

We have 0.6 * x >  0.4 * 100  

x > 40 / 0.6 

x > = 66 pips

Then your average gain needs to be 66 pips of gain, you can’t exit before and try to push the boundaries after. Your maximum loss will be 100 pips trying to mitigate if you can.

Then to resume :

1 – We enter in H1 with the trend of H4 when we see the opportunity.

2 – StopLoss of 100 pips

3 – Takeprofit minimum of 66 pips and more 

4 – 2 positions max of 0.10 USD lot or 1 with 0.20 as lot size (!).

5 – We need to keep 6 victories about 10 trades played.

6 – We enter in Monday/Tuesday – we take about 1 hour to see the opportunity and produce the trade -1 or 2 .

7 – We close before Friday night if success is reach (>66 pips) – we take about 15 minutes to close the position if we need to close.

What opportunity do we have now?

For example the 16th April at 10:37 PM you have a good opportunity with USDCHF

Figure in H4 show a bullish trend quiete clear.

The Figure in H1, show a low price reach in the trend of H4

We could then enter with USDCHF at 0.95984, Buying with 0.10 as Lot Size.

The Stop Loss would be 0.95984 – 0.01000 (100 pips) = 0.94984

For TakeProfit you will have 0.95984+0.00660 (66 pips) = 0.96647

 in H1 , you have a resistance around 0.96335 

Then you will need to watch the trade when it will approach this limit and be prepared to take your profit – perhaps at this moment. You would have gained around 40 pips then.

The other action you may take around this resistance when you are nearby the 40 pips of gain is to set up a trailing stop of 20 pips to confirm at least 20 pips of gain if the market reverse. If the price cross this resistance, you can be sure that you will hit your 66 pips in Takeprofit. Approaching the take profit, you could move your takeprofit 20 pips ahead setup a trailing stop of 20 pips ect..

We could do that also moving our StopLoss (it’s the meaning of trailing stop) but last Metatrader 4 is doing that more or less automatically 

We will see all this notion in the next post:”my first trade” but you have like a taste of what could be this first trade.

Also this trade is not done for a “fire and forget trade” because of the resistance which is before your take profit then you will need to watch. It’s not then the perfect trade “fire and forget”.