The only trading strategy you'll ever need.

I had coffee with a friend of mine yesterday and as often happens the topic of conversation turned to trading.

As a trader working from home, I know the importance of getting out and about to connect with real people in real places. The digital landscape is no substitute for a coffee and a catch-up.

Anyway...back to our conversation. I found myself explaining to my friend the trading strategy told to me by Jason Jankovsky, whose Psychology Of Trading Course I did a number of years ago now.

Before taking this course I thought successful trading was about finding 'the' winning system. After all there must be one, mustn't there?

This is a common pattern amongst beginning traders. With this belief locked firmly in their brains, after a number of losses handed out by their current system, they go in search of a new system and begin trading this instead. Perhaps the new system delivers winners for a while, but then hands out its own share of losers. The trader becomes disgruntled and makes the decision that despite a promising start that 'this' can't be the system either and they move on to the next. And so, the cycle repeats!

This path is the road to ruin, and it was Jason who finally showed me that this was the case. Every system has losers, it's an inevitable part of the trading process.

Jason told me he had a system he could teach me in a matter of minutes that over time could make me all the money I'd ever need. You can imagine my excitement to hear this, I couldn't wait. At the time I was still in the mindset that someone somewhere held the keys to the lock, which once opened would reveal the system that beginner traders all chase.

So here is that very system in all of its glory – the only trading strategy you'll ever need:

1. Take out a coin (any coin) from your pocket. Throw it up in the air and watch how it lands. If it's heads buy the market, and for tails sell.
2. Once in the trade set your stop loss X points away from your entry (let's say for example you decide that X is 30 points) and your target 2X (60 points) away from your entry.
3. Trade this system for 100 trades and log your results. 

And that my friends is it!

If you toss a coin 10 times it's highly probable you'll have a disproportionate amount of heads or tails show up, but over 100 trades the 50/50 probability that is a coin toss tends to even out. 

Using my example above – assuming each point is worth £10 and an even distribution of heads and tails, here are the results:

Winners > 50 x 60 x £10 = £30,000.

Losers > 50 x 30 x £10 = £15,000.

Net position after 100 trades = £15,000 profit!

Even with 60% losers and 40% winners:

Winners > 40 x 60 x £10 = £24,000.

Losers > 60 x 30 x £10 = £18,000.

Net position after 100 trades = £6,000 profit!

Wow – a net losing system that makes money. Factoring in a 2:1 reward-to-risk ratio, even when you lose more than 50% of the time you still have a profitable system.

So why isn't everyone just trading this system and why bother with technical analysis? 

1. It's incredibly hard to do. If you have 20 losers in a row, you'll likely experience a detrimental effect on your trading psychology. Psychology is everything in trading, but the experience of both losers and winners can change behaviour, which if left unchecked can cost you your trading account.
2. Technical analysis can improve your probabilities, and if done properly can be a more sophisticated and effective form of trade entry, management and exit. The candlesticks on any price chart for any financial instrument are the footprints of the overall beliefs in the market at any given time. Providing you keep your analysis simple and build a system that makes sense to you, it can give you an additional edge. 

What's more, the coin toss takes no account of risk / money management, which is a key determinant of successful trading, but it does communicate some key principles that every trader needs to know:

1. Trading is a game of probability, not certainty – be prepared to lose, because you will.
2. Hold your winners, be prepared to cut your losses and always trade with a stop loss.

Jason taught me that trading doesn't have to be difficult, and is not about memorising and mastering complex chart patterns. Trading is really about mastering your own mind and being able to do what human beings often find difficult to do – accepting we are wrong and moving forward unencumbered by emotional baggage. 

Trading is not just a skill to make money, it's much more than that. In the purest sense of the word it's a life skill, which teaches you how to live a better life.

So, only two days to go now before the 36-month forex trading challenge begins. I'm nervous and excited all at the same time. After a fantastic April, the last couple of months have been frustrating. I've preserved capital, but have not had the big winners that make all the difference. On average I take between 30 and 50 trades each month, so given the coin toss analogy above, probability states that after a great run, things at least for a time may take a turn for the worse. During these periods my emotional resilience is tested and will continue to be tested – it's just part of the game.

Trading is not salaried employment – you're not going to get paid the same amount each month. Returns can be more irregular and what happens over the long-run is what really counts. This is why my challenge is taking place over 36 months as opposed to 36 weeks, and although I have a target of 10% return on capital each month, the reality of the road to riches may not be so smooth.

I'm prepared and motivated to get going – roll on Monday!

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Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
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[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]