If I Could Go Back & Tell Myself What I Know Now... Part 3 of 4

Summary

In this video, the speaker offers guidance on how to practice and backtest trading strategies, emphasizing the importance of using demo accounts, like those offered by brokers, to build good habits. They focus on a simplistic approach, using key price levels (open, high, low, close) and Fibonacci retracements for optimal trade entries. The speaker discusses the value of backtesting setups and the psychological aspects of trading, advising against overtrading and stressing the importance of consistency. The session aims to prepare traders to transition smoothly from practice to live trading with realistic expectations.

Takeaways

• 😀 Focus on practicing good habits, not just trading every day or taking unnecessary risks. Use demo accounts to build discipline.
• 😀 Avoid overtrading and chasing trades. It's crucial to have patience and only trade when the setup is right.
• 😀 You don't need perfect entries to be successful. Focus on consistency over perfection in both entries and exits.
• 😀 Strip all indicators off your charts to focus on the four key price levels: open, high, low, and close.
• 😀 Familiarize yourself with Fibonacci retracements and the 62% level for optimal trade entries, especially in trends.
• 😀 Use higher time frames (like daily charts) to spot key levels and trends before looking for setups on lower time frames.
• 😀 Start building your trading journal early, focusing on objective analysis rather than emotional responses to wins or losses.
• 😀 Don't let losses affect your mindset. Understand that drawdowns and mistakes are part of the learning process.
• 😀 Practice backtesting using tools like TradingView, Forex Tester, or other platforms to analyze and improve your trading setups.
• 😀 In your backtesting, pay attention to how much time trades take to reach targets, how much drawdown occurs, and the consistency of your setup outcomes.
• 😀 Keep your focus on developing a structured approach to trading. Study daily setups and consistently apply your learned strategies to achieve profitability.

Q & A

Why is it important to treat a demo account seriously?

Treating a demo account seriously helps build good trading habits without the pressure of real money. It allows you to practice managing risk, making decisions, and avoiding overtrading, all in a risk-free environment. This mindset will carry over when you move to live trading.

What is the Optimal Trade Entry (OTE) pattern, and how does it work?

The OTE pattern focuses on trading at key price levels, specifically using the Fibonacci retracement levels. The key is to enter trades around the 62% Fibonacci retracement, targeting previous highs or key Fibonacci targets. This strategy helps you identify consistent entry points with less emphasis on perfection.

How does using Fibonacci retracement help in trade setup?

Fibonacci retracement helps identify key levels where price might reverse or find support. The 62% level is highlighted as a 'sweet spot' for entry. This strategy uses previous swing highs and lows to set up entry points and targets, providing structure to your trades.

What role does backtesting play in trading, and how should it be done?

Backtesting helps you refine your strategy by analyzing historical data. It involves reviewing past trades, considering factors like drawdown, time taken to reach targets, and how well the setup performed. Tools like TradingView can be used to mark out important timeframes and observe price action during those periods.

What is the significance of the New York session (8:30 AM to 11:00 AM) in trading?

The New York session is important because it aligns with market manipulation, accumulation, and distribution. Traders can look for price retracements during this time window to find optimal entry points. It’s often a high-volume time when major market moves are made.

How can you handle losses and emotional reactions in trading?

Handling losses requires emotional discipline. Traders should accept when they're wrong and not hold onto losing trades out of pride. Journaling is crucial to identify emotional triggers and improve future decision-making. The goal is to learn from mistakes and avoid emotional decision-making.

Why is journaling important, and how should it be used?

Journaling helps you reflect on both your wins and losses objectively. It’s not about beating yourself up for mistakes but understanding why you were wrong. The journal should focus on constructive feedback and patterns, helping you identify and correct recurring errors over time.

What should a trader expect in terms of trade consistency, and why is perfection not the goal?

Traders should aim for consistent results rather than perfection. Not every trade will be a winner, and that’s okay. The key is sticking to your strategy and learning from both winning and losing trades. Over time, this consistency leads to profitability, not the pursuit of perfect entries and exits.

How does the strategy evolve over time, and what should be focused on?

Over time, traders will evolve by stripping away unnecessary indicators and focusing solely on price levels, particularly OHLC data. By concentrating on key levels like the open, high, low, and close, the strategy becomes simpler and more effective. Focusing on consistency, not perfection, will lead to better results.

What should a trader focus on when backtesting multiple trades over time?

When backtesting multiple trades, focus on the overall pattern of entries, the timing of each trade, drawdowns, and the time it took to reach the target. Each trade should be reviewed objectively to understand what worked, what didn’t, and how to improve future trades. This helps build a data-backed strategy and realistic expectations.