And so why don’t you go ahead and start by doing a introduction about yourself, what it is that you do? – Yeah. Thanks for, first of all thanks for having us on the channel. It’s a real joy to be out here in the New York City. – Aside from the traffic, you mean? – Aside from the traffic, yeah, and the humidity, right- – Yeah.
– For those of you that don’t know me, my name is Jason Graystone. I’m a professional currency trader, and I’m also a cofounder of a company called Tier One Trading. We specialize in helping people achieve financial independence through speculative strategies in the financial markets.
I’m frequently number one author on TradingView.com. I’ve featured in blogs and podcasts. I’m currently writing a book, which will be out later this year. And I’m also invited to speak around universities in the U.K. And take part in research for business development and things like that. So I really enjoy entrepreneurialism as well as trading, but trading was what allowed me to be financially independent.
– Yeah, and we were talking about that a little bit off camera, I think it’s super interesting, but for you trading was a way for you to kind of escape the traditional work environment that you weren’t really a fan of? – Absolutely, for me, trading is something different for everyone, and for me it was a vehicle to get to a point where I just had time. I wanted the time to decide how I spended that time, and it was a way to accelerate my wealth in order to do that, so that’s why. That was my motivation for it. – Yeah, I know, that’s one of the most frustrating things, is when you don’t know exactly what it is you want to be doing.
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And you’re just not gonna succeed. And it doesn’t need to be that way. You can build systems around your personality so that you’ve got the best chance for success. So I’m gonna go through a bit of a framework from, based on all the information and the data that I’ve analyzed over the years. And I wanna just, before we get right into that, I just want to sort of debunk some myths because some of your listeners are probably thinking, I get asked all the time, isn’t it gambling?
Isn’t it risky? – Sure. And I’ve said things about that, on the channel about it. – Yeah. – Because, to be honest, I don’t know a lot about the trading side of, really I don’t know much about it at all, so. – No.
And, and like anything, you know. The markets are the market, they just do what they do, and it’s not the market that risky. It’s the approach you take to the market that’s risky.
So if you think about a casino, for instance, you’ve got One Arm Bandits, you’ve got a poker table, you’ve got blackjack, you’ve got roulette. And the reason the casino comes out on top in the end is because there’s no one who’s consistent. There’s no one with an edge, they just go there, blow some money, they’ve got no strategy, no plan. And they are approaching the casino as a gambler, right? Whereas, if you look at the winning poker table, it’s always the same players there.
It’s always the same players at the top of the tournament. They’re winning the tournament time and time again because they’ve got an edge. They’re not approaching the casino as a gambler. They’re approaching the casino as a business. It’s like- – Mm hmm. – They’ve got an edge, they’ve got a risk management strategy, a money management strategy.
They know when to get in and get out. They know when to stop, and they know when to continue. And the market’s exactly the same.
They, the market you cannot control, it just does what it does. So it can’t be risky, the market can’t be risky. You’re approach to the market is what’s risky.
– Yeah, that makes sense, yeah. – Yeah. So, lots of people think that it’s risky gambling but it’s down to you to approach it professionally as a business, to not, for it not to be a risk.
– Sure. – We’re looking for an edge, a paperthin edge. – So if you approach it like you would the casino, you’re gonna get a similar outcome more than likely, right? – Of course, of course.
And before we go on, I mean, people come to me and say I wanna be a consistently profitable trader. Well, the clue’s in the title, right? You have to be consistent. That’s it.
– Not all the time right? And not every trade? – Yeah, absolutely. And you just need to show up and do the same thing, the same thing, and we’re gonna get into that in a bit.
Secondly, people think that it’s, that you have to be intelligent, you know, you have to have a high IQ. I came out of school with one grade and that was aught. (Jason laughing) And it’s just simply not true, and if it was true, you would see a lot more brain surgeons ditching their 250 grand job- – And learning trading. – To earning seven figures trading. – Yeah.
– Because they’re far more intelligent than me, right? – Sure. – So, that’s absolutely not true. The next thing is that people think you need to know about all the global affairs.
You know, what’s going on in the country. – Sure, current events and how what’s going on in the political landscape and everything. – Absolutely, you know, unemployment rates, bank rates, all of that type of stuff. And that’s not true either. So, as a technical trader, I’m looking for patterns in the market, I couldn’t care less what’s going on in the world. If you, you know the market doesn’t affect me.
The bank rates don’t affect me. Brexit doesn’t affect me. – Mm hmm. – I’m just looking for a probable edge out of patterns in the market that are predictable. So you absolutely don’t need to know about all the global affairs of what’s going on. And lastly on that, people think you need lots of equipment, lots of piece, you know of, of- – Yeah, I’ve seen like the six TVs, six computer screens- – Yeah.
I would say once you get down the road, you know, it’s good to have two screens at least- – Sure. – Because, and I’m gonna go through some equipment that I recommend for you guys if you’re looking to, to start trading. Two’s good because you can have you know the markets, and you can have, you know, something else on another screen if you’re doing other things. But you don’t, you absolutely don’t need six screens.
Down the road, you might- The reason they have six screens or eight screens is because it’s, they’ve got a lot going on, and to make it easier they have different charts on different screens. – Sure. – You’re not gonna be on Wall Street from day one, and you absolutely don’t need tons and tons of equipment. – Okay, well that’s something I didn’t, that’s a myth debunked right there- – There you go. – Because that’s something I figured you needed, the six computer screens and I’ve said that in the past.
One thing that was interesting, I just wanted to mention, I was looking at one of your videos and you said there have been times where you go, like, a very long span of time without a trade because the right pattern doesn’t show up for you? – That’s right, yeah. – What’s the longest span you’ve gone without a trade? – There’s a saying that you don’t earn money from trading, you earn money from waiting and- – Okay.
– And it’s absolutely true. Although, you know, essentially it’s trading in the end, but you, trading requires a lot of patience and one of the other myths is that people think that you always have to be in a trade when you absolutely don’t. – Mm hmm. – What we’re waiting for is a set of rules to play out, and then we know we have a paper thin edge over the market. – Sure. – The probability of what’s likely to happen next, based on that pattern happening, provides us with our edge.
– It is about patience, it’s about patience. – And that’s also, there’s people who think similarly when it comes to investing, they think they need to be all in the market, at all times, and if they have any cash, they’re like, I’ve gotta, I’ve gotta get this money to work, I’ve got to put it to work. And then you hear about people going all in with the stock market, investing all their money, and then they have no mobility there. – That’s right.
– If a deal comes along, they can’t buy anything- – No. – Because they’re already all into the market, so. – Yeah, yeah. – It’s very similar to that patience aspect in knowing when to, when to hold ’em. – Yes. – You know, hold onto your money and say, okay, I’m gonna wait for a better opportunity, or you know look for what it is you’re looking for.
– Absolutely. And bear it in mind that we’re, what the purpose of this video is to give you the best possibiity of succeeding into trading, if that’s something that you wanna do. The last thing I need to mention on this bit is, it’s not, don’t look at it as a get rich quick vehicle, right? If you’re trying to think about how much money you can earn from trading, you’re really missing the elephant in the room. It can be the fastest way to grow your wealth. I’ve, I’ve, you know I’ve invested in businesses.
I’ve invested in property. I’ve invested in stocks and shares and, you know, this really is the most rapid way to accelerate wealth. But if you’re just chasing the money from day one- – You’re in it for the wrong reasons, yeah. – You’re out, you’re in it for the wrong reasons, which is leading us onto really the first step of the framework.
And they say, well I’m trading. And then they go, oh, I wanna trade. Do you wanna trade? Because, I’m telling you, if you don’t enjoy actually looking at the markets and you know, enjoy solving the puzzle. – Sure. – You’re not gonna stick with it.
Because there’s lots of hard work down the line that you’ve got to put in. – Yeah, but people tend to ignore that hard work piece and they just see, oh this guy’s driving a Lamborghini, I can do that too if I start doing whatever he’s doing, so. – Yeah.
– Do you have to have a natural interest in charts and patterns and puzzle solving like you were saying? – I would say that you have to actually enjoy, you know, looking at the markets and coming in each day and, you know, you don’t have to look at them all day. You can do day trading, swing trading, which we’ll go through, and you don’t have to spend lots of time in front of the charts. But you do have to have an enjoyment for the psychology in the markets, and going through the charts. Because there’s lots of backtesting data that you need to accumulate so that you’ve got a, you know, the psychology to- – Sure, yep.
Because the monetary value, or the monetary gains from trading is, you know, it can be life changing. And I was just with a couple of Wall Street traders and they said the same thing, you know, it can be life changing, but you don’t, you don’t, what’s the money for? – Sure.
– Because it’s just money, right? – Right. – There’s some kids in the prop firm, they’re just driven by the money. Because they haven’t got that, they’re just out of school, they’re just trying to better the other person for more money, right?
– And it was interesting too, you were talking about some of your motivations for doing what it is that you do, and wanting to like give back to the people around you- – Absolutely. – And really the more money you have, the more good you can do for the world, and the more good you can do for people’s lives. – Sure, for me, I mean for me it is to free up my time to do what I want to do.
And as I said to you earlier, I ask people, if people say you’re driven by money. You know, these are the sorts of people that I say, well, how much would suit you? And they say something like, well half a million or a million’ll do me, that would sort me out and like that. – Right. – And I think that’s very selfish because it’s just, you’re just thinking about you and your immediate family, not the big- – Not the people around you or your community or people you could really help, you know, yeah. – Absolutely, I’m thinking much bigger term.
And when you can teach someone the realistic expectations and teach, and they get results. That’s life changing. And there is not a better feeling than that. And even the, like I say, the Wall Street traders that we was with yesterday, even they are going into education because there’s just so much rubbish out there. – Yeah. – It’s important to get the information right because it’s giving it a really bad name as you can probably, you’ve probably seen.
– So just to tie it in here, in case you guys aren’t sticking around for the whole interview, you have a whole YouTube channel, right? Where you do videos like this, educating people pretty much for free and- – Yep, yeah, I’ve got my own YouTube channel, my personal channel with Jason Graystone. – I’ll link that all up in the, down in the description below for you guys too, but in terms of just kind of giving back, that’s one way that you do it as well. Just by kinda making- – Yep. – Videos, helping people, showing them the basics.
– Absolutely, and I’ve got a book coming out later this year that you can go and read. But we’re gonna go, through this video, we’re gonna go right into the technicals. I’m gonna show you actually how to make money in the forex market- – Sure. – So it’s gonna be really valuable for your listeners. – So if you end up taking a pause from this video, bookmark it and come back to it.
– Yes. – Because it’ gonna be along one, but a lot of value in this one. – It is gonna be a long one. There’s gonna be a lot to take in. I’m not gonna give you like everything, because that would just be, that would be days- – Yeah, that would be a couple of days we’d be stuck here, sleeping at some point. – But it’s gonna be a good one.
So, the first step as I went over, was the want and the why, you have to know that you actually want it and why you want it. The second thing is expectations. So this is the next problem. People, because of the way it’s advertised on TV, or these adverts, people think, they massively overestimate what’s achievable in the short space of time, so the first 12 months, say.
– Sure. – They think that they’re gonna double their account in a month, they think that they’re gonna be on yachts in a year- – Yeah. – And it’ just- – Not realistic. – It’s just not realistic, it’s not realistic. It’s not gonna take you, I’ll be very surprised if it takes you less than 12 months to really go through the process and learn properly. – Mm hmm.
– And have a system that you’ve tested, and you know, paper traded even, and then gone out into the markets. I’ll be very, very surprised. But then because of that, when they actually start doing it, they figure out it’s quite hard. They blow a load of money. And then, what they do then is they underestimate what’s achievable from 12 months to the 24 months say. – Sure.
– And, you know, that’s when the results can really, really compound, and you see exponential growth. And people get turned away by that. So, what I’m gonna do is just give you some expectations.
So, it’s gonna take you around 12 months to really, really learn, and then after that, you know, the money, if you can just go through, and go through the process in the right way, the money just comes. – Now, in that 12 months, how many hours a week or a day are we talking about here? – It depends on what type of trader you’re gonna be, and I’m gonna go through that in a bit more detail, but you can do anything from, the testing is what takes the most time.
– Okay. – The testing is what takes the most time because you’re essentially testing a strategy back in time, and that can take, you know you wanna go back about five years. – Okay. – And that can take a long, long time. Depending on how many markets you’re gonna be looking to trade. – Sure.
– So, that’s the most time consuming and the most grueling bit, and I’ll, and I’ll go through the process of that. The next thing is people just going through it, not really knowing the numbers. So they don’t know what they’re going for, it’s like, they’re just trading, you know, am I gonna replace my income, or aren’t I gonna replace my income. – Sure. – What will I do with the money.
And there’s a very, very simple formula. And you talk a lot about stock market investing, and passive income, right? – Mm hmm. – Building passive income streams. And essentially if you’ve got any sort of liquid assets, like fund, money in funds, you’ve got some cash, a cash buffer, some savings, anything like that essentially all you’re doing is you’re taking that and you are working out your expenses for the month, and you just wanna minus your trading income, divided by your assets, and that is essentially it.
And what that will give you is a, is a figure in time. So, if you’re getting paid monthly, say for instance you’ve got $5,000 in assets or cash, right? – Okay. – And you’re expenses are $2,000 a month, say. If you’re bringing in $1,000 in trading income per month well then, if you do the math on that, you know, the $5,000 divided by the $2,000 minus $1,000. – Mm hmm.
– Which the calculation is here. (Jason laughing) You’re gonna have five months. You can buy five months, you’ve repla- you’ve got financial independence for five months. – Okay, I see what you mean. – You’ve, you’ve replaced your income for five months. – I’ve never really thought about it that way.
That’s very interesting. – Right. So this is what I was working from, from day one when I was 26.
– Because your whole goal was to free up your time. – Yeah. – By generating this income, yep.
– Absolutely. And by having that sum, I put this down when I was 26 years old, and by having that sum in place I knew what I was going for. It wasn’t just a dream, it wasn’t just a- – So it was a tangible number- – Absolutely. – What you were reaching for, not just some pipe dream like- – Absolutely.
– A Lamborghini or- – Just, yeah. – Million dollars out of nowhere. – Absolutely, and by doing that you have something tangible, as you say. Here’s the great thing is, as you get better and better at trading, you can, you can match your living expenses which then, you know, your financial independence. – Sure, and then at that point you don’t have to go work if you don’t want to do that.
– And you free up your time. – Right, that’s the situation you were in, right? – You free up your time. And as you free up your time, you can earn even more money because you’re focusing more on trading- – More of your energy and efforts onto, yeah.
– Absolutely, so you’ve got it. So, just know, have your numbers, work that out, know what you’re working towards, and know that it’s gonna take you a while to learn. Alright, so that’s expectations. The next thing that’s really important is accountability, self accountability, because it’s all on you. With other markets, you know, if you got a shock. You, you’re selling a product, you’re relying on customers, you can blame the staff for not showing up- – Yeah, you have excuses.
– You’ve got excuses. You can blame like the supplier for bad goods. You can blame the economic crisis. You can blame- – Blame the weather. – Blame the weather.
– Whatever you want, yeah. – Blame the traffic, blame the geographical location your shop’s in and everyone’s gone vegan, right? – Mm hmm. – And it’s, you can blame things. With trading the markets, it is all on you.
If you lose money, it’s your fault. – Right. – Right? – And that’s kind of something that I’ve heard from people as well, is they say like, oh the stock market stole money from me. – Yeah. – And it’s like, you handed it over.
You know, if you lost money, you have to at least own up to that. You can’t blame the market, it didn’t reach into your bank account and pluck out money, you know? – We hear the same thing. And it’s like, oh the broker stopped me out, or the broker took my money. And if you, if you make statements like that, or if you hear people say statements like that, it just shows their lack of knowledge towards how the orders- – Sure. – Are executed in he market.
So, absolute rubbish. But you need to know that you’ve got to be accountable. Self accountability is absolutely key. Secondly, the, you’ve got to be accountable to not go off and chase the shiny object. – Sure.
– You’ve got to stick at one thing. And what is this, it’s gonna take you forever, this is what I struggled with, I just, you think that someone’s got a better system. You go and follow that. – Yeah, you’re jumping around from one thing to another and just kinda dabbling with it, right?
Alright, in this lesson I’m going to be going over the equipment that I think you need to be able to trade professionally. There’s lot of common misconceptions about needing thousands of pounds worth of PC equipment, and six monitors and so on, and that’s simply not true. When I started trading, I started trading on a 15 inch laptop, and I did most of my testing on that laptop as well. So in this video I’m gonna go over what I think are the minimum requirements, and then I’m gonna go over what I think you should really have if you have the budget for it. So, if you only have the budget for the minimum standard, then go ahead with that.
And if you don’t have the budget for the minimum standard, well, you can either not trade or simply go with what you have. So when I start talking about i5 or i7 processes, and you say you only have an old core duo, then you can start on that. But if you’re going to treat this as a business, I really believe that you need at least the minimum specification laid out in this video. So you may be aware that technology moves very, very quickly and it becomes dated quite quickly.
So if the last time you upgraded your PC was over three years ago, say, then it’s likely that the software, or the hardware that you’re running is out of date. So the first thing you need is a decent processor. And if you have recently bought a laptop or a PC, the chances are you already have one.
It’s going to be an i5 or an i7 processor. The minimum requirement, in my opinion, would be an i5 processor, and if you have the budget, well then an i7. The second thing that’s important is the RAM. What RAM does, is it allows your PC to run multiple processes at once. So if you think of the processor being the brain of your PC, well then the RAM is how many different things the brain can juggle at one time.
And what I recommend is four gigs of RAM as a minimum. Now I’m going to suggest to you that you go with an 8 to 16 gig of RAM, but if you buy a new PC or laptop, it’s likely to come with eight gig unless you specify otherwise. RAM is very cheap, and if you get the chance to upgrade when purchasing, it would be well worth investing in that upgrade, otherwise you may get down the road and wish you’d done it when you bought the PC. But just know that eight gigs of RAM is enough. So next on the list is an upgraded hard drive. If you think of RAM as processes handled at once, then the hard drive is the memory.
It’s the place that stores all of the processes that aren’t being used. Now the speed at which it can grab the unused processes depends on the speed of that hard drive. So you can have a lot of RAM, and a great processor, but if it takes your hard drive a long time to find the information that the RAM and the processor is asking for, then you will still have a slow machine. Now many machines will come with a traditional hard drive, such as a one terabyte hard drive, 7200 RPM SATA drive, and it will get the job done for most people.
But since you aren’t most people, and you are a trader in the making, I’m gonna recommend that you upgrade to a 256 gigabyte solid state drive. And there are a couple of examples here. The first one is a Samsung SSD 830, which is very good. The next one is as a SanDisk SD SSDP-256G25.
And the next thing I’m gonna go over is a solid graphics card because crashes aren’t fun. The graphics card will allow your PC to run smoothly without lagging, crashing, and run multiple programs and use multiple monitors, if you want to, without getting that blue screen of death. And then you have to restart your PC and you don’t want to have to deal with all that. So you don’t want a graphics card that’s too small, especially with all the charts and live data that you’ll be using. And I have two recommendations here.
The first one is an EVGA Gforce GTX680, which is an amazing graphics card. It’s what graphic designers use for CGI. And the other one is an EVGA Gforce GTX760 which is no where near as expensive as the first one, and will happily run a couple of monitors. But if you want to be able to run three or more monitors and you’re that type of person, then you may wanna go for something like the 680.
So the next thing is monitors. Now, don’t believe that you need six plus monitors to be able to trade successfully because you don’t. You can just use one monitor. I would recommend having a second screen, purely because you can use one for your chart testing and one to log your results. You can use one for your analysis and the other to place trades.
Or you might be part of a live room where you want the live room on one screen and your charts on the other so you can follow along. It simply makes your life easier and that’s really the only reason. I have six monitors but if you think of all the stuff that I do, I run a webinar, I have news and social feeds going on. I have the lower time frame pairs, the higher time frame pairs, the screen recording software running, and I need to keep my eye on a lot of stuff at one time. Especially as I’m talking to people in the live room and explaining my analysis in detail.
I need to be able to keep an eye on things as I trade live in that room, and I don’t want to miss anything. But for you, it’s really just not necessary. And with regards to monitors, I use the AOC 27 inch HD monitors. But in my opinion, you really should have two qualities. The first is that the monitor should be HD so that charts are crystal clear. And the second is that they are anti-glare or matte finish screens.
These two qualities will ensure you don’t strain your eyes when spending hours in front of the charts whilst learning and testing and even trading. And the last thing is your internet connection. A decent internet connection is essential to trading. Execution is critical, so you need your connection to be fast, working, reliable, and not cut off just as you’re about to place an order. Or a news event comes out and you can’t get your stop-loss in place.
It happens, so do your best to make sure it doesn’t. I would recommend an upload speed of at least 786kbps, and a download speed of at least 3 meg, which is very common these days anyway. But make sure you can get fast internet, don’t skimp on it, it will cost you in the long run, believe me. Alright, so just to recap, you need a computer with an i5 or an i7 processor, 8 to 16 gigs of RAM, upgrade to a solid state hard drive, upgrade your graphics card, a monitor that won’t fatigue your eyes, and a solid internet connection.
And that’s it. And even if you go with the low end of all of that stuff, you’ll still have a great trading machine. It’s gonna do everything you need it to do. So that’s it, that’s what I recommend, and if you have all of that, then you’re good to go. Now this must be one of the most commonly asked questions that I get: What charting software do you use? What charts are those?
What do I need? Is it okay if I use this one? Is it okay if I use that one? And I know you’re probably seeing tons of different trading platforms advertised on the TV or web, and you have absolutely no idea what one you would need. So I want to share with you what I think are a few of the best charting packages that you can use. I’m gonna go over just three different platforms, and give you the advantages and disadvantages of all three in my opinion.
Now firstly, there are a few functions that I think you need on a good charting package. The first one is flexible movement. In other words, you want to have that 360 degree movement so you can easily manipulate the charts whilst doing your analysis. The second thing I think is very important, is to have real time data connection. You don’t want a delay in your data because this would be detrimental to your trading. The third thing is a full set of indicators.
You want to have all the indicators at your disposal should you require them. Now I use very little in the way of indicators for my own trading, but you’ll need to have the RSI, ATR, and the Fibonacci indicators as a minimum. So the first platform I’m going to recommend is TradingView.com.
TradingView.com is a completely free charting package that offers extremely flexible and powerful tools in real time. You can now link your broker account to that package and you can place trades on the charting package as well. For charting and analysis, this is a great package. It has the 360 degree movement on the charts.
You can set watch lists. You can set alert levels that will email you or text your phone when the market is reached so you don’t have to be at your PC all day. And all of your analysis is also saved on the screen until you delete it, so you can close the web page, open up on another PC, and it will all be there just as it was when you left it. It has all the tools and indicators and the developers are frequently releasing new tools and features.
This package will give you news releases. You can place demo trades, so it’s good for your forward testing or demo trading. And it will even log your performance for you. A couple of downfalls to the package, in my opinion, is the lack of data. You can currently only go back around a year or two, which means if you’re testing strategies on the 60 minute time frame, or even the 15 minute time frame, the chances are you’re not gonna get that 100 trade sample size that I recommend. Now the second thing is that this platform has a social media aspect to it as well, where you can share ideas with other traders, which is quite cool, but the only downside, in my opinion, is the forum section.
This can be extremely damaging and dangerous to traders because trading is a fairly lonely business, and some traders get tempted to participate in the forums and this results in Chinese whispers, lack of correct information, or just simply the urge or temptation to check that next shiny object, which we’re trying to move you away from. Now this’ll end up with you getting lost in the abyss again and that’s not what we want, so, now don’t get me wrong, this is a great platform, except there isn’t quite enough data in my opinion, and the forum section should be approached with caution. The next platform I’m gonna recommend, purely because it’s still very popular, probably the most popular trading package, and you may or may not have heard of it, but that’s MetaTrader, or MT4. This package is clean. It has all the indicators you will need here, and can place trades directly on the chart.
So it’s a charting package and a trading platform in one. The downside to this platform in my opinion is the indicators aren’t very user friendly. The charts aren’t easily manipulated and can be quite limiting when it comes to the more advanced trading strategies. The platform is free and as long as you have a data feed provided by your broker, you’re good to go.
Now the last trading platform I’m going to recommend is NinjaTrader. NinjaTrader is a very crisp, clean, and extremely flexible charting package. Again it’s a charting package and a trading platform in one, so you can place trades live on the charts. And all of the tools are extremely user friendly. The charts are easily manipulated and everything is customizable. The platform again is free if you have a data feed from a broker, and you can save different workspaces for different portfolios or backtesting, and real trading work spaces.
Also, the platform offers advanced ATM strategies which means once you get slightly more advanced, you can code your own automatic trade executions. This is the platform that I use, and I think it’s a great package, not only because of everything I’ve just mentioned, but to top it off, they have an outstanding support team with tons and tons of video tutorials on their YouTube page. So there we have it.
You no longer need to worry about what platforms you should choose, and what charting package to use. I would say, go and have a play with all three, get a feel for which one suits you best. – Okay guys, welcome back.
So now Jason is going to go into more detail here about really identifying some of these patterns in the market, correct? – Yep, that’s right. So, first thing I wanna talk about is the difference between fundamental analysis and technical analysis because there’s no right or wrong.
You know, there’s people that rubbish, either or- – Yeah. – And the truth is there’s no analysis that tells the future. – True. – And so, there’s- – Yeah, as much analysis as you do, you have no idea what’s gonna happen, I mean you can kind of manage your risk involved with investments, but there’s never a guarantee that the market’s gonna go any one way or another. – No, so I think it’s crazy when people say, oh that’s, you can’t use technical analysis to, to- – Yeah.
– It’s crazy, right? So, fundamental analysis is more news based, more, you know, the economic data, what’s going on in the world. And really, the reason that I don’t like to use fundamental analysis for trading is because you’re not guessing the figure, or the result, you’re guessing the market participants’ reaction to the result, which is impossible, right? You can’t, you don’t know how people are gonna react to a certain news release, or a certain event.
– It’s the same way as well with investing in companies when you’re trying to bet on an earnings report. – Yeah. – You can guess about what the numbers are gonna come in at but you could have one thing in that earnings report that people don’t like, and that stock can go in the complete opposite direction of where you were expecting it to, so. – Absolutely. – I completely understand you on that piece, yeah.
– Yeah, 100%. And with technical analysis, technical analysis is based on psychology. So there are patterns in the market, although people think the patterns are, you know, they, we never know what’s gonna happen next in the markets, right? – Mm hmm. – But, contrary to popular belief, there are patterns in the market that have stood the test of time, they’re not entirely random.
And the way that we build our edge is to identify sequence of patterns in the market so that we know that if we get this pattern, then it’s likely to do this next. – Sure. – And that is, and then what we’re looking to do is build rules around that pattern. So if we see something that happens frequently, and we go back and test that, and it’s happened frequently for five years, or six years, or tens years, then if we can build rules around entering that, exiting that, that move, then we’ve got a high probability, we’ve got a positive expectancy.
– Mm hmm. – We’ve got a system that provides us with a positive edge, a statistical positive edge. And that’s really all we’re looking to do.
So the reason I love technical analysis is because we don’t have to worry about what’s going on in the world. There’s a saying that a technical trader can trade the market regardless of knowing the market. And although that’s not entirely true, because you have to test the markets.
– Sure. – What they’re saying is, because of the technicals, it’s the patterns we’re looking for, it’s not necessarily the market. – Mm hmm.
– It could be Apple, Google, it could be currencies, it could be futures. It’s the patterns we’re looking for in the psychology in the markets. – Now can you make money in both bear markets and bull markets with this type of strategy? Does it matter if it’s going up or down?
– Yeah, it makes no difference. – Okay. – That’s one of the great things about forex which is you can short the market and you can buy the market. – What’s the majority of the trades you’re doing? Are they betting against?
Or are they bullish trades? – So we’ve got, with investing for instance, what you’re really doing as a passive investment, is you’re hoping that it goes up. – Sure. Yeah usually it’s asset appreciation.
You’re gonna buy it and eventually sell it down the road at a higher price, or collect your dividends. – Absolutely. With the forex market, it’s a bit different. It essentially moves sideways over time. So, although it might be going bullish for a long, long time it will end up at the same price that it was, sooner or later.
– Sure. – And we can go short, we can go long. And the forex market actually consolidates for a longer period of time than there actually is in a trend.
– Okay. – So, 80%, 70% to 80% of the time we’re in consolidation, some form of consolidation. And only 20% to 30% of the time we’re trending- – Do you trade when it’s in consolidation, or no? – Yeah- – Oh you do, okay.
– So I’ve developed strategies for bullish, bearish, or consolidation. – Interesting. – Another important thing is to be able to adapt to that, you know, and not just be arrogant and sort of stuck. – Right, I mean, yeah, if you could only make money at a certain, and that’s also like people who can only make money during a bull market.
With investing, you have to know how to make money in all, you gotta be an all weather investor- – Yeah. – Or trader as well. All season trader. You know, you can’t just be able to make money at a certain time and then say, alright, I’m gonna take a break for nine months, or- – Yeah. – Or wait for, you know. – That’s an interesting point.
And I think it’s important that you, just touch on this again, that trading isn’t investing. – Mm hmm. – Trading, we’re not just going long and holding. – Yes. – That’s not what we’re doing. We’re trying to get in and out, and capture a high, a move in the market that has a high probability so that we can get the profits out, and that’s it, we’re going in and out.
– Now how long, is it, I’m sure it varies. But how long do you usually have a trade open then? Is it, you close ’em at the end of every day? Or do you have some over night? – Yep, I do about three hours a day, trading a day. – Mm hmm.
– And I, they’re sort of in and out within half hour. – Okay. – I really day trade for the education piece, so that I can show people what I’m doing, the methodologies, the process.
– Mm hmm. – If I wasn’t doing education, I’d purely be a swing trader. So, four hour time frames. – Okay. – I’m in the trades from anything for two days for up to two weeks, maybe. – Okay, so then you’re holding it overnight.
I guess that was one of the other misconceptions is that all day traders close everything by the end of the day. Or is that true, or it depends? – So with the stock market it’s close at the day. With the forex market, if you’re in the UK it closes at 10 o’clock on Friday night and it reopens at 10 o’clock on Sunday night, but that’s it. – The forex market. – Yeah.
– Other than that it’s open 24 hours, Monday through Friday? – Yep. – Very interesting. – Yes.
– So you could, if you wanted to trade at two in the morning you have the availability to do that? – Yeah, you can trade 24 hours. – Okay. – Right, so now I just want, now I’ve been over the technicals, and explained a bit about the patterns in the market.
What I really want to do is show your listeners how we can identify these patterns. – Sure. – So I’m gonna go into my trading desk and give you guys an example. – Okay, sounds good. – Alright, so as mentioned just now, we’re gonna need to look at the way that markets move and how we can identify some patterns. And I’m going to be going through a simple pattern that I want to share with you, that then you can go and identify for yourself.
So the first thing I want you to be aware of is the market moves, how the market moves, okay? Because what you’ve probably seen the market move up, and you’ve probably seen the market move down, and you’ve probably seen the market move sideways. Well when they’re moving up, we call this a bullish trend. And when we’re moving down, we call this a bearish trend. And when we’re moving sideways, this is either called ranging or consolidation.
Now, when we see the market moving in any direction, there’s certain things that we can pay attention to that are likely to cause a reaction or the market’s likely to respect. The first thing is gonna be even handle numbers. So, if we’re talking about the market being driven and you know, the patterns in the market being respected by psychology, patterns being psychologically driven, sorry, one of the things we’re paying attention to are even handle numbers. So anything like a dollar flat, or 1.5 or 1.1, 1.2, anything with an even handle number the market tends to respect more often than it doesn’t.
Okay, so not every time, but more often than it doesn’t. Remember we’re going for that statistical edge. Another thing that the market respects are numbers with 50 in it, so anything with 50. So 14.50, 15.50, 13.50.
So, 50 and even handle numbers, just bear in mind that that’s respected. And anytime that the market respects any psychological number, what we see is structure. So the next thing we’re gonna show you is how the market moves. So what you’ll see is this cyclicity where we see cycles in the market of a new high, a retracement, and then we’ll see a new high, and then we’ll see a retracement, and then we’ll see a new high. And the market moves in ebbs and flows like this, and usually the structure, this is what creates structure, and normally these structure levels are created by even handle numbers or significant levels of importance of being respected previously in the market. Now what also tends to happen is, as we push up, what we call this is a resistance level, and what we call this is a support level.
So this is like the ceiling where we hit resistance. This is like the floor where we bounce, we hit that support level. What we normally find is that when we put in new highs and we push back down, previous resistance then becomes support. So the structure is actually respected as well.
So, one of things I just want to touch on is how to identify a trend. And then what I’m gonna talk about is how we look at the end of the trend and we can predict a reversal. So, first of all, to identify a confirmed trend, we’re looking for a three point move. So we’re looking for this move, the retracement, and then the new structure high.
And then what we know is we have a high probability that the market’s gonna continue up until we violate this previous outside return, or retracement here, at which point we’re in consolidation and then we need to look for that three point move again, one, two, three, in order to make a prediction that we’re likely to see a continuation to the downside. So normally we see this, this, this, this, until we end up reversing again, violating this outside return, or retracement, and then we look for that three point move again. And it just continues like that. And the reason we do that is because once we hit that three point move, we know we have a higher probability that the market’s gonna move up or down, depending on what direction we’re going in. Now the pattern I want to talk to you about today, there’s many many different ways to make money in the market.
And I’ve been over certain things that affect structure in the market, like even handle numbers, 50 levels, previous structure, and historical levels that have been respected time and time again. But what I want to go over in this video is when we spot a reversal. So there’s a pattern that happens frequently at this point that we can use to short the market at the end of a bullish trend. Or if we’re in a bearish trend, we can then look to, by the end of the bearish trend, and look to buy this up. So there’s a simple pattern here called a double top.
Now you might have heard of this referred to as a V top, but it’s a double top. And essentially what it looks like is this. We get to the end of the trend. We then have a small retracement here. And then one final push up, we get reject to this test, and then we fail to put in a new high and then we roll over. And this is called a V top, or a double top, and I’m gonna go through the rules of this right now.
Okay, so let’s just say for instance that the market’s been pushing up, and we’ve identified our test, our initial test, and then we’ve started to retrace. What we’re looking for for this to be considered a valid double top is a test of this high. So this high wick of the candle, we’re looking for a test of this level, so this zone here, for the second test.
So, what we’re looking for is a test of this high and what we can’t do is close above this previous high. So if the candle pushes up and closes above this previous high, what we’re talking about then is a continuation to the upside. So it’s important that we wait, and we wait for the close of this candle, and as long as it doesn’t close above the high, it can do this, it can push up and put in a higher high, but it can’t put in a higher close. So we’re looking for a test of this zone. We cannot close above this high. And as soon as we get a valid retest, which can look like this, it can look like this.
Okay, it can even look like this. Or it can look like this, okay, because we’ve tested this zone and we haven’t closed above. Soon as we get this formation, this is considered a valid double top.
Now, normally the double tops are price and time symmetry on the retracement, so we have price and time symmetry on the retracement as well. But essentially what we’re looking for is this little V and then we’re looking for a retest of the initial test high, but not a close above the high. And this is what we call a double top. And what typically, what we’re looking for after this is to enter a trade on the next candle and then we’re looking for the market to roll over. So now you’ve got a grasp on how to identify some patterns. What I’m gonna talk about is how you actually build a trade plan, because this is essentially gonna be your business plan for being a trader.
And what I always say to people, is the first thing you wanna ask yourself is, when deciding what time frame to trade or when to trade, is when can you consistently be in front of your charts? Because people have jobs, people run errands, people take their kids to school. – Sure. – They got their shopping coming on Tuesdays, they got the bins going out on the first.
– Yeah. – Right? When can you actually consistently dedicate time to being in front of your charts?
Because what we’re going for here is consistent profits. – Mm hmm. – So everything needs to be grounded and based off of a consistent plan. So, it makes no sense for someone who’s got a full time job to try and check charts at, you know- – At their desk- – At lunchtime or- – Or sneak it in between. – Yeah, on the phone to a client, or they’re rushing to a meeting.
– Yeah. – It’s just, it’s silly. You don’t want to do that.
First thing you wanna do is go like, when have I got an hour to dedicate? It might be at lunch, it might be an hour after work, after the gym, when the kids get- – But uninterrupted time, basically, is what you’re getting at. – Just uninterrupted time, that’s all.
– Yeah, okay. – It doesn’t matter, it doesn’t matter if there’s more, you know, volatility, it doesn’t matter what’s going on. Just make sure it’s a dedicated time that you can just dedicate to being consistent. And then, just find one pair for now, one market. So don’t try and, you know, find lots and lots of different markets, don’t scour through different markets. Just get to know one.
I always like to think of it, when I met my wife, I met her in a bar and all I knew about her that night was she liked white wine. – Mm hmm. – Right, that’s all I knew. The next day when I rang her up, I wanted to meet her again, we went out for dinner, I knew what food she liked. And then I knew what patterns she, when she had lunch, when she was out on Sunday. – Sure.
– If you can just get to know one market first, you’re gonna get to know the market, you’re gonna understand more about that market and how it behaves. – Mm hmm. – The markets behave in different ways. There’s different markets that behave different ways. And it’s best just to know one pair.
And if you’re looking at what market to look at, just pick one of the majors, so one with the dollar in it. So you’re gonna get a bit of movement. Any pair of the dollar is gonna, the dollar’s the base currency for the world and if you pick a pair with the dollar you’re gonna have some movement. – Sure. – So, it’s not gonna be boring. There’s gonna be something for you to test.
There’s gonna be something going on. But just pick one, so euro dollar, pound dollar, you know, Aussie dollar, anything with a dollar. – And I believe that’s familiar or similar to as well with people who day trade, they usually only trade a basket of stocks. They have a couple that the learned the personalities- – Yeah. – They typically don’t just, you know, pick one out at random, they kind of learn the personality of each one of these stocks.
Is that kinda the same thing as what you’re talking about here? – Absolutely. I always say that, you know, trading is a business. And these markets that I’ve got on my screens are my employees, they’re my employees. – Sure.
– They’ve got different personalities. Some perform better under pressure. Some perform better in the summers.
Some show up late. You know, it’s very, very similar to running any type of business. – Mm hmm.
– And if you look at it like that, you’re gonna appreciate that some are gonna perform differently. And also, if you did start a business you wouldn’t employ 30 people on day one. – That’s very, that’s a very good way to explain that, yeah. (Jason laughs) – Right, it’s insane, you just wouldn’t. – It’s kind of like, because I talk a lot about paths of income on the channel, they say the average millionaire has seven sources of income, you’ll get people who want to start all seven at once.
And it’s like, what are you gonna do? (Jason laughing) Dedicate one hour a day to each one and then become a millionaire? – That’s great. – So you would, you’d do one very well, and then you move onto the next one. So it’s- – Absolutely.
– That’s, yeah, there’s a lot of ways that that’s applicable. – And then once you’ve got your pair then, and you’ve got the strategy, what you wanna do is, you don’t just wanna take every single set-up that you see. You know, if you was to go through different markets and apply one strategy, you’d probably have thousands and thousands of different opportunities per month. What we want to do is we want add some filters to that so that we get the higher probability moves. So, although we’ve got an edge by identifying a pattern in the market, what we really want to do is identify the really high probability, and you can add things like filters. And what I wat to do now for your listeners is just show you how.
We go back to that example I just gave and then add some filters to that to really give you the higher probability trades, so let’s jog back to the desk. Alright, so, as we’re building out a trade plan, what we want to do now is take the double top principle and we want to apply some filters so we’re not taking every double top that we see because if you, if you just apply those rules and you look for those rules for a valid double top, you are actually gonna see them form in many places that don’t provide high probability trading opportunities. So what we’re doing is we want to build some rules, build out a plan and say, I’m gonna have some filters in place so that I only look for these trades in the highest probability zones. So, taking into consideration what I’ve been over already, what we’re gonna look at is we’re gonna see that we’ve pushed up here and you can see that we’ve, we’ve held this level before we started to see a retracement. So we’re monitoring the market pushing up and we’ve seen a hold at this level which just so happens to be the 0950 level.
So if you look over here on the right, we’re at a psychological number, that 50 level. And we’ve hit that level, and what I’m gonna say is if we zoom out now, so if we just zoom out this market and we go back in time, we’ve put our horizontal line in and then we’ve scrolled back in history and we’ve seen, actually we’ve tested this level once, twice, three times, four times, five times, six, seven, right? And we’ve held this level much more often than we’ve, we’ve broken through it. So every time it’s tested, it holds more often than it doesn’t, okay, before it’s violated. So what I’m gonna say is you have a rule in your trade plan to say I need at least three previous touches of this level before I consider entering this trade.
So the first rule is a minimum of three previous touches of this level before I take the trade. The next thing I’m gonna look for is something called the RSI, so this little squiggly line down here is the RSI which stands for Relative Strength Index. And what this does is it indicates overbought conditions in the market. Now I’m not gonna go into too much detail on this right now, but just know that if we’ve pushed above the overbought condition, it indicates that the market’s running out of steam. So if we couple this as a filter, with the fact that we’re at a psychological number that’s been tested three times, at least three times previously, we’re likely to see a little retracement.
Now, we’ve seen the retracement already, so now what we’re looking for is that second test, and that rejection, that hold of this level. So what we’re gonna do is we’re gonna watch what price action does next. We know we’re interested in this level, now we’ve gonna have to peel our eyes and wait for the rest of our rules to be met, which I’m going to explain right now.
Okay, so you can see that price action started to push back up, but remember the rules of the double top. We are actually, we need a test of the high, the previous high, which is this little zone here, the wicks, the high wicks of the candle. We need the price action to push up and at least test that zone, and not close above the higher of that test. So let’s see what happens next. Alright, you can see that this candle here hasn’t quite tested the zone, it’s pushed up but it hasn’t quite tested the zone, therefore it’s not valid, so we can’t take the trade yet.
And what I’m gonna be looking for, on the second test, you know I mentioned that we were overbought, what I’m gonna look for is some bearish divergence. So I’m looking for equal tests of this high, and I’m looking for bearish divergence, so a slope down on the RSI, equal tests of the high on price, bearish divergence on the RSI, and that’s gonna be used as another filter. So, so far we have psychological number, okay, which I’ve moved, psychological number, at least three tests of the level previously, overbought condition on the initial test, and then bearish divergence on the second test.
And by waiting for those filters alone, it’s gonna turn your trading opportunity that you’re looking for, your trading strategy and your plan into a very, very high probability system. So let’s see what happens next. Alright, so you can see on this candle, we’ve actually tested the zone. We haven’t closed above the high, so what we can do now is actually sell the market, next bar market, so what that means is, as soon as this candle closes, and we have to wait for this to close because if we don’t wait for this to close the chances are we can push up and close above the previous high, which would mean it’S invalid. So we wait for the close, we wait for the candle to close and then we sell the next bar market.
And then what we want to do, is we want to put our stop-loss above the high, and I’m gonna use a 10 pip stop-loss, so we’re gonna go 10 pips above, so we’re gonna be up at 60, 0960, and we’re gonna take profits off for this example at a retest of the low. So we’re just looking for a pull back down into a retest of this low. So we’re gonna sell this now, next bar market, and we’ll see what happens next. So there we have it. You can see that we’ve rolled over, this is a high probability because we waited for those filters to be met, we didn’t just take any double top that we saw.
We waited for those filters which gave us an extremely high probability of being right, and in fact, you can see here that we continued down even further. So, that’s how you identify a trading strategy, a pattern in the market that happens frequently, that’s how you add filters to it, to make it a very, very high probability trade, rather than just taking those low quality trades. And that’s how we combine it altogether to really give you those high probability moves. So let’s just say for the sake of this example that this risk here, where we entered, was once percent of your account. Then, if we just clone this, you’re gonna see that this was a one, about a one and a half risk, one and a half to one risk would, which means this would be a one and a half percent profit on your account in one trade. So hopefully you can sort of get a bit more excited about how we can really hone in on those high probability trades.
And instead of there being thousands of different opportunities, we’re honing in to like 10 opportunities a month here to really get those high probability trades out of the market . And what that does is it suits many people’s personality because if you’re like me, I personally like to be right more than I’m wrong, and I like to win more when I’m right than I lose when I’m wrong and I just like that edge. – Sure. – Some people, some traders I know they’re happy being wrong, you know, seven times out of ten, and they’re happy with that because they’ve got a much bigger risk or rule profile. – Okay, so is that based on your personal preference? – Yeah.
– Or is it kind of based on your risk tolerance? Or you just kind of figure that out through testing it out? – Absolutely. – Okay. – You see it’s, it’s your personality, really. It’s so important to build it around your personality.
If you’re not happy taking, you know, if you’re not happy being wrong more than you’re right, then just don’t don’t have a system that does that. – Sure, yeah, makes sense. – Right? I like being right at least 50% of the time- – Mm hmm. – Because then I know I can make money with money management, and I’m gonna talk about money management now. So, once you’ve found a system that is profitable and it’s proven to be profitable, what we do, where the real money’s made is through money management.
So this is a strategy, if you think about a coin flip, if I was to flip a coin, if you flip a coin 100 times, over that 100 times you are likely to be right 50 times, right- – Sure. – So 50-50 flip. If every time it was heads I paid you a dollar and every time it was tails, you had to pay me 50 cents. – Mm hmm. – You’re gonna want to flip that coin as many times as possible because you’ve got a statistical edge- – Sure.
– Of having 50%, but you’re gonna win more over time, right? – Right, yeah, you’re gonna, you’re not gonna lose as much. When you lose, you’re gonna make more when you’re right. – Absolutely, so that’s called risk management. If you was to add a money management strategy to that, let’s say for instance every time you hit 10 winning trades, or ten winning flips, we up, we increase the size, and every time you lost five- – You’d decrease?
– Decrease. – Okay. – So what we’re doing is we’re protecting our capital as we’re going through a bad period, because there will be losses. – Sure. – There are loss. And then we’re increasing your capital, or your position size, as we’re, as you’re doing well, as you’re going through those hot streaks.
And what that does, it allows you to accelerate your account and protect your capital. – So one question that I have, I’m not sure if you touched on this previously, but how much, if you really want to get started with this and you want to go through the whole testing phase and you know you’re gonna, you know you’re gonna lose money, how much money do you realistically need to have in order to get through that learning curve in kind of figuring this all out? – Yeah, I think, let’s talk about losses then for instance because- – Sure. – There’s a cost of doing business, right?
– Right. – So whether, as you said earlier, whether it’s education- – Yeah, there’s no such thing as a free lesson out there. – No, there’s not. And it is a business, so you’ve got to buy a laptop, a PC, right? – Mm hmm. – Which I’ve been over, the equipment, you might have to have a membership to a trading platform- – Sure.
– It’s a cost of doing business, right? So they’re overheads. And with the markets, it’s, the losses are the same as any other business except they don’t come in the same order, so if you think about a product. If we sell a physical product, we’ve got a markup on that- – Sure.
– What with your overheads, okay? And we’ve had a cost of producing the product. So, if we sell our product for $10.00, we might get $3.00 profit at the end of it.
And every product we sell, we know that we’ve got to pay the overheads, we get three dollars, and we’ve got the profit. – Mm hmm. – With trading, the losses are just the cost of doing business, and then the profits, they don’t come on every trade. – Okay. – It can, it’s over time. So, you could have a week of losses, and then you could have two weeks of winning trades.
So it doesn’t, it’s not on every single trade that you get the profit and loss. – Makes sense, yeah. – And that’s what people really struggle with because they think, oh god, I’m losing trades. But that’s why it’s important to stick with a plan because you know you’ve got a statistical edge over time.
– Sure. – So- – So is it really about just consistently showing up and applying the same principles each time? – Absolutely. We’re gonna talk a bit about backtesting now, because now you’ve got the plan, and you’ve got the rules, and you’ve got, you know, you understand money management. The first thing you need to do, or the last thing you need to do, I should say, before you go live, is to test the system.
Now this is the thing that’s skipped most. This is, you know, I would say that 98% of the people that go in trading don’t do this bit. – Really?
– Yeah. – Do you think this is a big part of why that failure rate is so high? – 100%. – Okay. – For me, take my example for instance, for me personally it was the turning point.
– Mm hmm. – It was what changed me from just blowing money to being very consistently profitable. – Sure. – And I’m gonna talk a bit about backtesting.
So, once you’ve got your market and you’ve got your system, your strategy, you want to go and test that over time. So use your historical data, the old info from the trading platforms, and what you are looking for is a minimum of five years, or 100 trades, whatever comes first. So depending on the timeframe, if you’re a very small timeframe, you’re looking for a 100 trades which might be two years, or if you’re on a higher timeframe, on the four hour or the 60, you might have to go back five years to get the 100 trades, right?
– Sure. – So, you want a minimum of 100 trades and, or five years of data. – Okay. – What the backtesting phase does is it gives you black and white results on the probability of your trading system. So what you then want to do is go out and replicate in the markets what you’ve tested. You don’t want to deviate from that at all, you don’t, you literally want to build the rules off of your backtested plan and say, this is what I’m gonna do going forward.
And it’s a set of tangible rules that says, this is the results you’re likely to expect, so go out and do that. – Based on the historical data looking at those trades. – Yeah. – Okay.
– So, if your, if you’ve got a system that provides a return of, you know, 40%, 50% return on investment per year, you want to stick with it, you want to go with that, right? You don’t want to tweak it. But the amount of people that didn’t get that, and then go out and start breaking the rules- – Yeah.
– And then go, why am I losing money? Or the other problem that they do is they test one market, and because that’s profitable, they bring in another market and they assume that the strategy works on that market. – Oh, they try to take that strategy and apply it to a different market entirely?
– Because they can’t be bothered to test it, right? – Because that’s probably, is this the most time-consuming aspect of it? – Yeah.
– Okay. – It takes around, it’s gonna take, it takes me around 20 hours per market to test. – To backtest it, okay. – And I would say that you need to test one market, one strategy, one timeframe at a time. So you don’t want to be jumping around strategies, you don’t want to be jumping around markets, you just want to get one whole set of results done. – Sure.
– And it’s gonna take about 20 hours to do one. – Yeah, that’s funny how that is the most time-consuming piece is usually the most important piece, and then people just skip it because they’re like- – Yeah. – I’m not gonna be bothered to spend 20 hours if it’s, and that’s really, if that differentiated there between the successful and the unsuccessful- – It really is. – It’s amazing, but I certainly believe it.
– Yeah, I want to give you guys the realistic expectations, and if you don’t do this you’re gonna have a very hard time. Just, just get it done. And it is grueling, it’s horrible, it’s the worst part, it is. – Is it just sitting there looking at chart after chart, looking at the outcome? – Tic by tic, you know, going through the rules, if this happens, then I’m looking for this. If that happens, then I’m looking for that.
And then you’re setting your entries, and I’m gonna give you guys an example- – Okay. – On the spreadsheet on how to do that. And it is just horrible, I mean, I didn’t speak to my wife for three months when I was doing the testing, and it is, it is horrible, but that is what’s required and in the grand scheme of things, it’s not a lot of time, but you’ve just got to get it done.
– Yeah, you’ve just got to get through it. There are certain aspects, well, that’s the way it is with anything and you saying, having been involved in different businesses, there are certain parts of it that you love, and there are certain parts that you hate, but they’re equally important. – Absolutely.
– You know, and you kind of have to, you have to get through those parts that might not be so glamorous or interesting to you, you know. – Of course. And it is, I mean, lots of people talk about backtesting as education, because it’s not very glamorous. – Yeah, that’s not, that’s not gonna sell this when you sit through, if you have a, if people are trying to sell their programs if you sit there and say you’re gonna hate this, it’s gonna be grueling, I didn’t talk to my wife for three months, that’s not a great sales pitch, you know?
– Buy my stuff, yeah, yeah, yeah. – Yeah, but buy it anyway, you know. – Exactly. – But that’s, that’s, and I think that’s why people really appreciate you, is because you are so honest.
– Yeah. – And it’s almost kind of like, it kind of takes people back that you’re this honest because there are a lot of very shady people- – There are. – Involved in trading in particular. – You see a lot of it. – Yeah, and I get that.
And there’s people, you know, the trolls on YouTube. – Yeah. And they retaliate and I get that because they have been led up the garden path and they’re like, oh no, I’ve actually got to do some work. This can’t be true, I’m gonna just, no, you’re telling lies- – Right, yeah. – And it sort of like denial, but you can see from the people that I work with and the- – Sure.
– The community I’m in, that my only motivation is to give people the truth, based on my own experience. – Absolutely, yeah. – And if you take one of my private clients, for instance, he applied the strategy, tested a couple of pairs, and then he, he just went and assumed that it worked on all the markets, right? So he was trading for two years just slowly bleeding money. And he wasted two years of his life until I said to him like, show me your backtested data.
And he said, I haven’t got any. – Wow. – And I said, well, you’ve got to go and do that. And I’m going to give you three months to do it. He went back, three months later he had all the tested data, I was checking it off, I was spot checking everything. He then produced a report that said this pair wasn’t profitable, that pair wasn’t profitable.
This pair wasn’t profitable with that pattern, this pair wasn’t profitable with that pattern. – Sure. – And he had, he knew to take out all of that stuff, and it changed him from being bleeding money over two years to doing 3-1/2%, 4% per month.
– Wow. – In you know three months. – Amazing, and it’s just so, it just seems silly to me if that takes maybe, okay, it is a grueling process, but if it just takes that certain amount of time, to then waste two years doing it wrong because you don’t want to start and have that proper foundation it’s just like- – Of course. – Crazy to me, but- – And if you think about it, it’s just because they didn’t go back to the start of this video and actually want it.
They don’t, they don’t have a great expectation- – Sure. – They don’t, they don’t know why they’re doing it. – Mm hmm. – And that’s why this process is absolutely crucial. Alright, lots of people overcomplicate backtesting.
They don’t know where to start. They ask me if we can automate it or use a mechanical system and my answer is always, it’s always best to do it manually. I like good old Excel, and I’m gonna show you a spreadsheet that we’ve developed, very comprehensive spreadsheet that does all of the calculations for you, and it’s also a journal, and it also does your money management. But I’m gonna just show you in Excel first, just so you can grasp the concept of backtesting.
Because it really is easier than you think. So, there’s a few things you want to pay attention to when we’re backtesting. So the first column I’m gonna put the market. So in our instance, we’re trading forex. So I’m just gonna write the pair. So that’ll be the Aussie CAD, or in our example of the double top that we just went over, it was the euro dollar.
So the first thing we want is the market, or the pair. The next thing we want is the timeframe. So we want to know what timeframe we are testing. If it’s the 60 minute, the 15 minute, the four hour, the daily, or whatever, in our example it was the 60 minute. But we want to make a note of the timeframe.
The next thing we want is the entry date. So we want to know where we got in. We want to know what date we got in, if we ever need to refer back, or we’re crunching the numbers at the end and we want to find out if there’s any periods that are unprofitable time and time again and we need to remove them. It’s gonna be important to have this information.
So, on from that we also need the entry time. And lastly, we want to know the entry price, where we’re actually entering, buying or selling. And once we’re in the trade, we want to make a note of our stop-loss level, so that’s where we’re gonna be wrong, and then we want to know our target price. Okay, so where the target is. And then of course, on the way out of the trade we want to know everything in reverse.
So we want to know the exit date, because the trade could go on for one day, two days, three days, whatever. We want to know the exit time. And of course the exit price.
Now the exit price is either gonna be one of these two. It’s gonna be the stop-loss, or it’s gonna be the target, because we’re either gonna get stopped out, or we’re gonna hit our targets. So the exit price will be one of these two, and we can use that combination to calculate the profit and loss at the end. So in this one we can have the total pips, or points.
So let’s go back to our example now and put some data into this table. Okay, so looking at our example here, we know that we had to wait for a test of this level right here before we entered, and we had to wait for the close of this candle before we entered, right? So, if we hover the crosshair over this next candle, you can see that this is the 26th of April and it’s at 8:00am. So the first thing we can do is our pair, which is the euro dollar, so we’re gonna go euro USD.
The timeframe is the 60 minute chart. So we’re gonna go 60 minute. We know that it was the 26th of April so we’re gonna put twenty – you guys in America do it opposite to us, so 4-26-18, but 17, sorry. Then, we’re going to the entry time, so 0800.
And then what we’re gonna do is put in the entry price. Now we know that it was next bar market, so we’re gonna put the crosshair at this level here and you can see on the right hand side of the chart it says, 1.0946, that is where we sold the market, so, 1.0946. Now, our stop-loss I said was 10 pips above the high. So we looked at the previous high and we said, right, it’s 10 pips above that so we was up at 0961, okay so, 1.0961. And then our target price was a retest of these lows down here at 0926. So, 1.0926.
Now, what we want to do is we want to track what happened next, so the exit date was actually straight after, so this lasted one hour, this trade, a maximum of one hour, so the exit date is the same. We’re gonna copy that and paste it in there because I’m being lazy. The exit time was the same hour. So we’re gonna go 0800 again. And the exit price was, of course, our target price, so 1.0926.
And then what we’re gonna do on this is because we are selling the market we’re gonna go our entry price, minus our target price, which will give us the total pips. So you can see that the entry price was 0946, take away 0926, that’s a 20 pip profit. And you can put calculations in here to automate this, but you can essentially see that we’ve got a 20 pip profit on that trade. Alright, so now I’m gonna show you our spreadsheet which is a lot more comprehensive. It actually works out everything for you. It’s got some nice little charts here to show you.
Your win percentage, your maximum losing streak, which is essential when we’re setting that risk tolerance and our position sizing. We’re looking at a massive sample size. So this is earlier on this year and you can see that we’ve been logging trades on this particular project for a long, long time.
This goes all the way back to 2009, I believe. If we just scroll up here, there’s tons and tons of data here, and this essentially works it all out for you. In this case, we’re taking two positions, so we’re taking two targets, which is a little bit more complex but it allows you to boost your account a bit more.
And then what you can see there, this actually logs the backtesting into a money management spreadsheet which actually tells you what your position size should be. So it tells you the difference between fixed fractional and smooth ratio. And also you can set the level at which, when you go above a certain profit, it triggers your position size so that then you increase your position size. And this is how we can, as I mentioned earlier, how we can really accelerate our returns when we’re doing well, and then protect our capital when we’re going for a draw down.
So you can see just to here, for instance, that we’re increasing our position size until we take a loss, and then we drop back down. We then hit a winning streak, until we take a loss, and then we drop down, and then so on. So, you can see how this takes, you know, in this instance we took a $50,000 account to just under a million, and this is obviously over, since 2009. So this is a nine year process from taking 50 grand to a million, but pretty decent. Now this spreadsheet is very, very comprehensive and you don’t really need, you know, something like this, but if you are treating your trading as a business, then I highly recommend that you have something a bit more complex than Excel. But just to go and backtest a strategy, hopefully you can see from now, from this little example here, how simple that can be and how you can really be on your way to go out and start testing these strategies.
– Now something else I want to ask as well, can this be a hobby? Or is this something you really have to be all in about? I mean, can you just day trade casually?
Or you know, get involved with trading casually where maybe a couple days during the week you want to sit down and trade? Or do you really have to have that dedication to this? – Yeah, that’s a really great question and my answer, the answer’s no. You cannot dabble in trading. – Okay.
– You have to show up. You know, summer months are gonna be quiet, Christmas is quiet. The big institutional traders who move the market, they’re the ones that go into the Hamptons for the summer, right? – Sure.
– And what you have to understand, we don’t move the market. Retail traders, we have no power moving the market. It’s all moved- – That’s the same way with retail stock market investors as well, your buy order of 10 shares of Facebook is not gonna move that share price, you know?
– Exactly, exactly, so all we have to do is, you know, during those slow periods, we just have to show up because there’s gonna be maybe one trade, two trades, that we catch, that keep us afloat for the summer. – Sure. – And we’re really look at a return on investment over time here, we’re not looking at, you know, a consistent 100 pips per day, or a 1000 pounds per month. It’s, it’s over time.
– Sure. – You’re gonna, you might have a month where you lose. You might have a negative month. You might have a break even month. You know, June for me was extremely profitable.
May was flat, and then February was very profitable and you know April was flat. So it’s just looking at the average over time. – Okay.
– And you have to show up, you have to be consistent. – But yeah, that is very interesting because I’m sure a lot of people maybe don’t want to go all in with this, and it’s important to realize that it can’t just be a hobby, you know. – No, it can’t be a hobby. You need to want it, you need to know why you want it.
You need to have realistic expectations, you need to hold yourself accountable. You need to learn the right ways, start at the beginning, in the process, go through it the right way, and then you’ll have the results that you want to do, that you want, it’s as simple as that. – Mm hmm.
– The results are inevitable, if you just go through that process. – Sure. – Alright so finally let’s just talk about results, then. If you’ve gone through that process, realistic results, so people think that they’re gonna double their account week after week, that’s absolutely ridiculous.
What you don’t want to do is risk so much that you’ve taken a big hit, and you are now having to make up so much money just to get back to break even. – Sure. – You know, I use a smooth ratio money management strategy, which I’ve been over.
Most people, some people who just get into trading use a minimum percent risk of their account. So some people like to say 1%, I’d say that’s a good start, right? – Mm hmm.
– You don’t want to risk more than 1% of your account on any one trade. And if you can consistently do that and just focus on not breaking that, then it’s gonna take you a long time to be out of the game, right? You’re gonna have the chips, you’re gonna have your poker chips.
If you risk, if you blow 50% of your account, you’ve got to make up 100% of your account to get back. – Yes, that’s, I’ve mentioned that too before. People think like, 50% loss, 50% gain. But that’s not gonna get you back where you started.
But if you have a 50% loss, you now have to double your money to start back, yeah. – And it’s very hard to double your account. It’s very, very hard to double your account. – Sure.
– So realistically in terms of results, what you’re looking at is if you can be consistent and you can go through this process and the learn the right way, you’re looking at around 3%, maybe 4% conservative per month which compounds out to, you know, 14% per year. – Which is, which can do astronomical things to your money. I mean I know, a lot of people don’t understand the power of compounding. – Compounding.
– But that’s, I know it sounds like a little bit, but that’s, that has a huge impact on your, yeah. – Of course, and if you couple that with, obviously, passive investments and you know- – Sure, and then something else that we could also tie in here as well, is do you recommend that a lot of people maybe like, take some of the profits from the high risk side of investing and put it into a more passive strategy? – So, when I started trading well- – Sure. – I was investing anyway, I’ve got automated systems that do my investments and everything. And I was, when I started trading, I started splitting the money 70/30. – Okay.
– So I had a 70/30 split. And then as I became better and better, I went to a 50/50, but absolutely, if you take some of the profits that you’re getting from your investments and you put them into your trading account, then you’re talking about a serious- – Sure. – Acceleration strategy there.
– Or there other way around as well, where maybe you’ll wanna take some of your profits and put them into a- – Into an investment. – Into a passive strategy where, okay. – Absolutely, it works both, it works both ways. – So you don’t have to be polarized there where you’re one or the other, you can do a mix of both of these things?
– No, just find your strength, you know. – Mm hmm. – Again, you’re not going into trading as the be all and end all, this is another wealth acceleration strategy. It’s not something that’s the end. – Sure.
– It’s just gonna help you achieve financial independence quicker, that’s it. – Okay Jason, well thank you so much for coming on the channel here. – Pleasure. – I certainly appreciate it. Where do people go out there looking to learn more?
– Yeah, we’ve honestly been over a lot in this video and there’s a lot to take in. I recommend you go and re-watch it. And if you really are interested in learning more about how to trade the financial markets, you can find the website below this video. – Yep, everything’s linked up in the description. Alright, what is it, TierOneTrading? – TierOneTrading, yep.
– And then you also have a YouTube channel as well where you’re pretty active posting videos on a consistent basis, and- – Yep, yeah, yep. – Okay. – So everything’s below, and hopefully we’ll be working with you soon.
– Alright, well thanks so much for coming on. And thank you guys for sticking around and watching this whole video. And if you guys want to see more videos like this where I talk to different experts out there, let me know down in the comments section below. I’d love to hear your feedback. Alright, see you guys later.