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Why Following a Trading Strategy Doesn’t Work (Do This Instead) — Transcript

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0:00If you're following a trading strategy,
0:02it's probably one of the main reasons
0:04that you're not making money from your
0:05trading, or at least struggling to
0:07become consistently profitable. Which I
0:10know sounds ridiculous because finding a
0:12strategy is the first thing that
0:13everyone tells you to do. You need to
0:15figure out a strategy, develop the
0:17discipline to stick with it, manage your
0:19risk, and then you'll be able to profit
0:21in the markets. But it's not true, and I
0:23had to learn that the hard way myself. I
0:25started learning about the markets back
0:26in 2002, almost 25 years ago, and a lot
0:30of that first decade was spent learning
0:32all different kinds of strategies,
0:34practicing them, putting in lot of time
0:36and effort with absolutely nothing to
0:38show for it. And it was only when I took
0:40the time to test everything properly
0:42that I saw how completely useless most
0:45of those strategies were, and how
0:47illogical that overall approach actually
0:49is. And that includes many of the same
0:51strategies that are the most popular
0:53ones today. They're just the same
0:55that's been around for decades, just
0:57rebranded with a new spin. But once I
0:59changed my approach, things improved
1:01massively. By 2012, I'd made enough
1:04money from trading part-time to give up
1:07my career in banking and start trading
1:08full-time. And since then, I've
1:10consulted for hedge funds, a top
1:12investment bank. I've worked with some
1:14of the best in the business, including a
1:15well-known legendary trader, and people
1:18who have literally made hundreds of
1:19millions of pounds in the markets. And
1:21let me tell you, if I picked up the
1:23phone to any of them and tried to
1:25convince them that they need to follow a
1:26strategy in the way that most people are
1:28taught, they would laugh in my face.
1:31Well, they'd be on the other end of the
1:32phone, so they'd laugh as they're
1:33hanging up on me. And yet, the truth is,
1:35having an appropriate strategy for each
1:38trade is undeniably one of the most
1:41important factors for having great
1:43performance and succeeding as a trader.
1:45And that's something that all of those
1:46people would agree with as well. Now, I
1:49know that sounds like a contradiction,
1:51but you're going to soon understand why
1:53it's not, and why almost everyone in the
1:55industry is taught to do the the
1:58opposite of what they should be doing.
2:00Now, if you're new to trading, this
2:01might be the most useful video that you
2:03can watch to avoid wasting months or
2:06years learning different strategies like
2:08I did. And if you've been trading for a
2:10while, but your results haven't improved
2:12in the way that you hoped, you haven't
2:13reached the levels that you thought you
2:14were going to, this could explain why.
2:16In fact, I think it probably will.
2:18And by the way, what we're going to
2:20discuss in this video is just one part
2:22of my overall logical approach to
2:23trading, and I've put together a free
2:25course to explain it to you that you'll
2:27find in the description box down below.
2:29It shows you what you should actually be
2:31analyzing in the markets, how to
2:33identify real opportunities, and what
2:35actions you should be taking to execute
2:37them properly. So,
2:38what is it that everyone's getting
2:40wrong?
2:41Well, they misunderstand two fundamental
2:43things.
2:44Where strategy fits into the trading
2:46process, and what a strategy is actually
2:49meant to do. You know, if everyone
2:51explains trading strategies in the same
2:53way, you take it for granted that they
2:55must be right. But, that's not the case.
2:57Now, think about how a trading strategy
3:00is usually explained. It's a set of
3:02predefined rules and criteria, a bit
3:05like a recipe or a checklist, that
3:07dictates what to analyze, how to find
3:09trades, when to enter, how to manage the
3:11position, and where to exit. So, if we
3:14draw out what that means as like a
3:16simple diagram, it looks like this.
3:18The strategy comes first, and then
3:20everything expands from there. So, the
3:23strategy dictates what you do and how
3:25you approach the markets. But, the thing
3:27is, strategy in itself isn't unique to
3:30trading. It's been studied and applied
3:32for thousands of years, including in
3:34fields that have more complexity and
3:37much more at risk than what we have in
3:38the financial markets.
3:40So, let's see how the strategy experts
3:43define what strategy is. Here's how one
3:45of the leading experts, Richard Rumelt,
3:47describes it. He says, "The core of
3:50strategy work is always the same.
3:53Discovering the critical factors in a
3:54situation, and designing a way of
3:56coordinating and focusing actions to
3:59deal with those factors."
4:01So, strategy comes after you understand
4:04the situation, which means that what
4:07most traders are being taught to do is
4:09completely backwards. You're coming up
4:11with a solution before you understand
4:13the problem. It's like giving an answer
4:15before you've even heard the question.
4:17Because the truth is this, your strategy
4:20shouldn't come before your analysis. It
4:22should be the outcome of it. You don't
4:24bring a strategy to the market and
4:26follow it. You create one in response to
4:29what the market is showing you at each
4:31unique time, each unique situation.
4:34Imagine a huge company that's seeing
4:37massively declining sales. They wouldn't
4:39just cut prices on everything because
4:41that's the strategy they decided on in
4:43advance. It might not even be a pricing
4:46problem that's the cause of their sales
4:47declining. So, instead they'd figure out
4:49why sales are dropping in the first
4:51place and then come up with a plan that
4:53deals with it. And listen, it's just the
4:55same with trading. And this is why I
4:57absolutely hate one of the most common
4:59questions that people ask me. When I say
5:01that I've been a full-time trader since
5:032012, people learning to trade will ask
5:06me, "Oh, so what strategy do you
5:08follow?" And my answer is always the
5:11same. "Well, show me the chart first.
5:13Show me the opportunity. Because until I
5:15know what's going on in the market, I
5:17can't tell you what the strategy would
5:19be." So, for the rest of this video,
5:21we'll call that approach, one that you
5:23can see demonstrated in the diagram at
5:24the top, a predefined strategy. Because
5:27it's defined before you've even seen the
5:29chart. And this is what most traders are
5:31taught to follow. And to understand why
5:34this is such a problem, you first need
5:36to know what you're actually looking at
5:38on a chart. Everything you see on a
5:40chart, whether it's a candlestick chart,
5:41a footprint chart, or anything else, is
5:44basically just a summary of
5:45transactions. People buying and selling
5:48different quantities of an asset various
5:50prices over a period of time. But, one
5:53transaction on its own tells you almost
5:56nothing. So, if you look at this diagram
5:57here, that's the reason it's the part at
5:59the bottom. The smallest amount because
6:00there's a limited, really limited amount
6:02of information.
6:04But, when you group transactions
6:06together, you get different types of
6:08activity. Reversals, momentum,
6:11consolidation, pullbacks, volume
6:13increasing or decreasing, moves of
6:16different strength, size, and speed. So,
6:18activity tells you a lot more than
6:21transactions, but there's still a
6:22limited number of things that it can
6:24actually show you.
6:25Think about it. What can it show you?
6:27There's a limited number of categories
6:29that you can put it in. But then, when
6:30you group all the activities in a
6:32situation together, you get the context,
6:35and that's where the meaning is. And
6:37because the activity can combine in
6:39endless different ways, the context in
6:41each situation, in each market, at each
6:44period of time, is never exactly the
6:46same. It's always unique. So, I call
6:50this the market context hierarchy. And a
6:52good way to think about it is like
6:54language. So, transactions are like the
6:56words. Activity combines those words to
6:59form a sentence. And then, context
7:02combines all those sentences to form the
7:04whole conversation, or the novel,
7:06whatever it is. Silly example, but if
7:08your boss at work says to you, "We need
7:11to talk." straight after you've smashed
7:13your performance targets and achieved a
7:15record quarter,
7:16that means one thing. But if your
7:18partner says it after you've forgotten
7:19her birthday, you know you're probably
7:21in trouble. It's the same sentence being
7:23said, but the context tells you which
7:26one you're dealing with, and whether you
7:27need to get your excuses ready, and
7:28maybe disappear for a while. So,
7:30obviously, we want to interpret the
7:32unique context each and every time.
7:35But a predefined strategy doesn't
7:37actually do that. It picks out a
7:39combination of activity, a particular
7:40element of the context, like picking out
7:43a few sentences, and it decides in
7:45advance what they will mean, what the
7:47context will be if those things appear
7:49at once, and what you'll do about them.
7:51It's like memorizing a page from a
7:53phrasebook, and hoping that that's
7:55enough to have a conversation in a
7:57foreign language.
7:58Obviously, it's not. So, here's a really
8:01basic example. Let's say that on the
8:03higher time frame, so the bigger
8:05picture, the market's in an uptrend. so
8:07that gives you your bias. Then on a
8:10lower time frame, something that you see
8:12as being a rejection formation, a
8:14reversal pattern, appears. And so, the
8:17strategy you're following tells you that
8:19the trend's about to continue. So, you
8:21enter a long trade, you're buying, with
8:23the stop loss below the level, and the
8:26previous high as the profit target, and
8:28you take the trade and execute it like
8:30that. Now, that that I've just described
8:32is what I would call pre-packaged
8:34context. So, you're taking a few
8:36elements in advance and saying that when
8:38these appear, this is the context, this
8:40is what it means for the market, this is
8:42what I should do. Okay? Now, your
8:43version is probably way more
8:45sophisticated than that. Probably more
8:47time frames, more confirmations,
8:49different types of levels, patterns, or
8:51formations, fair value gaps, liquidity
8:53sweeps, or some other pre-packaged
8:56sequence that has to play out before you
8:58enter a trade. Doesn't really matter. If
9:00what you're looking for, what meaning
9:02you'll give it, and what you'll do about
9:04it, are decided before you even see the
9:07chart, it's still a package, even if you
9:10add a certain amount of discretion to
9:12feel like you're in control. As long as
9:14you have a meaning attached to certain
9:16things that emerge on the chart, you are
9:18packaging up the context. Just think
9:20about this.
9:21The problem is that a predefined
9:23strategy focuses on what's similar
9:26between each different situation, and
9:28completely ignores everything that's
9:30different. So, that means you're making
9:32the assumption that the differences in
9:34each situation don't actually matter. As
9:36long as the similarities are there, then
9:38the context means the same thing each
9:40time, and so, if it matches your entry
9:43criteria, your strategy is telling you
9:45it's a trade opportunity. So, you take
9:47the same actions. But, I don't think it
9:49takes a genius to realize that that's a
9:51load of because most of the
9:53time, the differences matter just as
9:55much, and sometimes even more than the
9:58similarities. You could have the same
10:00exact setup, but the shift in activity
10:03behind the significant level, how price
10:05got there, what the potential outcomes
10:07are, how activity could change as those
10:09outcomes are playing out and many other
10:11things are all going to affect the
10:13context, which in turn will affect the
10:16opportunity and even whether it's an
10:18opportunity in the first place. And I
10:20showed this in a recent video with a
10:21real market situation. So, price was
10:24failing at a major significant level,
10:26which a lot of traders would look at and
10:28see as a reversal setup and they'd want
10:30to enter for a short trade. But, by
10:31walking through and figuring out the
10:33cause-effect sequence to understand just
10:35that aspect of the real context, we
10:38could see that the chances were very
10:39high that we were going to have a
10:41consolidation rather than a direct
10:43reversal. We could also figure out what
10:45would need to change for the bigger move
10:47to happen and for us to gain a more
10:49precise entry. So, in other words, the
10:52unique parts of that situation are what
10:54mattered, not how much it resembles a
10:57reversal setup. And that video is going
10:59to be linked at the end of this one on
11:00the end screen if you want to watch it
11:02next.
11:03But, this is why following a predefined
11:05strategy leads so many traders to losing
11:08over time. Because, when you ignore the
11:10differences, you end up taking a lot of
11:12trades where the context is telling you
11:14something completely different to what
11:16your strategy is assuming. So, some of
11:19the trades that you take will have no
11:21real advantage and some will be actually
11:23working against you. So, your results
11:25are going to end up depending on luck
11:27far more than you think they are, not as
11:29much on skill as you'd want them to. And
11:31because every trade costs you something,
11:34not only in terms of the potential loss,
11:36but also in terms of spreads and
11:38commissions, if you're trading without a
11:40real advantage, it doesn't just leave
11:43you breaking even over time, it slowly
11:45drains your account. It's also why so
11:48many traders find a strategy that seems
11:50to work for a while and then suddenly it
11:52stops and they stop getting good
11:54results. It's because over a small
11:56sample size, a small number of trades,
11:59luck can look exactly like skill. But,
12:02it's not skill, it's still just luck.
12:04It's just that the results make it seem
12:05like it is. So, when the good run of
12:08results comes to an end, usually nothing
12:11has actually changed with the strategy.
12:13The strategy didn't stop working, the
12:15luck did. Now listen, you might be
12:17thinking, but my strategy's been back
12:20tested. I know the probabilities. In
12:22other words, you tested on past data to
12:24see how it would have performed. And
12:26that brings me on something really
12:28important that I need to mention. So,
12:30the truth is, a lot of trading educators
12:32aren't really interested in teaching you
12:34things that will help you. They're only
12:36interested in sharing whatever's going
12:38to make them or their strategy sound
12:40more legit or more appealing. And I know
12:42this because I see how many channels out
12:44there take our lessons, take the
12:46transcript, put it into AI and
12:49regenerate like a new version of the
12:51script and repackage it as their own,
12:53including the same examples and
12:54analogies that I use. And in fact, it's
12:56the same with this video. If this video
12:58does well, you'll see this exact concept
13:00being taught everywhere else very soon.
13:03And what it shows me is that they're not
13:05actually teaching things that they know
13:06have worked for them or that they've
13:08tested or gained through experience.
13:10They're just looking for more content
13:12that's been popular so that they can
13:13also have a popular video. But the
13:15problem is, they don't even realize when
13:18the very thing they're teaching
13:20completely contradicts their own trading
13:22approach, the way that they claim
13:23they've been succeeding in the markets.
13:25It dismantles it. Because they haven't
13:28followed the logic to reach that
13:29insight, they've just seen it somewhere
13:31else and now they're spouting out things
13:33they think sound good because they've
13:34seen it be popular. And one of those
13:36things I've noticed it with a lot is
13:38probabilities. Now, if you've watched my
13:40channel before, gone through my free
13:41training, my program, or anything,
13:43you'll know that a big part of what I
13:45teach is about forecasting in the
13:47markets, estimating probabilities, and
13:49finding positive expectancy trades. And
13:51so, I've seen so many channels now where
13:54they're teaching that you need to find
13:56trades that have positive expectancy,
13:58but then telling you that you need to
14:00backtest your strategy and apply the
14:02success rate to future trades, and
14:04that's how you'll know it's positive
14:05expectancy. Now listen, I'm sorry, but a
14:08predefined strategy and probabilities
14:11don't even belong in the same sentence.
14:13A success rate from past trades isn't a
14:16probability for the opportunity you're
14:17assessing now because the conditions in
14:20each of those trades were not the same
14:22as the conditions now. If you want to
14:25estimate probabilities and find if a
14:26situation has positive expectancy, which
14:29everyone seems to agree that trading
14:31does rely on, you need to analyze the
14:33unique context in each situation and
14:36forecast the potential outcomes
14:38properly. That does not align with
14:41following a predefined strategy. Sorry.
14:44So, thinking back to the two models from
14:47earlier, the two diagrams, if every
14:49situation that we see in the markets is
14:52unique, then that also means that our
14:54strategy for each trade needs to be
14:56different as well cuz it needs to be
14:57adapted to the context. And that's the
15:00contradiction from the start of the
15:02video because the truth is strategy is
15:05really, really important. Just not the
15:07kind that you bring with you to the
15:09market. So, what is a trading strategy?
15:13Going back to Rumelt's definition from
15:15earlier, it's the actions that we take
15:17to deal with the situation that we've
15:19uncovered. So, your analysis tells you
15:22what the opportunity is, your strategy
15:24is how you decide to deal with it. Now,
15:26at this point, I think you'll be
15:28perfectly fair to be thinking, "Well, if
15:30we don't have a predefined strategy, how
15:32are we going to be consistent? Doesn't
15:34that just mean that we're making it up
15:35as we go along?" And the answer is no.
15:38So, like many other skills, consistency
15:41is going to come from your ability to
15:43execute your skills at that same high
15:46level, which obviously relies on your
15:47ability level in the first place, but
15:49also your preparation, the process that
15:52you're following, your mindset to a
15:53certain extent. And we can think about
15:55it in any other skills. You know, what
15:56makes a consistent footballer? You could
15:59say it's their ability to follow the
16:00tactics and play their role, but then
16:02look at someone like Messi, who's
16:04famously not a system player and teams
16:07design their tactics around giving him
16:08the most freedom possible. And yet, he's
16:10one of the most consistent players I
16:12think over the course of his career,
16:14he's never had less than a six out of 10
16:16in terms of his match rating, and it's a
16:18very long career. So, the most freedom
16:21but the most consistency. The
16:23consistency comes from the skill. Or
16:24think about a doctor, the one that is
16:26really good at solving patient problems.
16:29They don't give every patient the same
16:30prescription and hope for the best.
16:32Every patient gets examined properly
16:34first before diagnose the problem and
16:36gives them prescription.
16:38So, not the best analogies I know but
16:40hopefully you get the point. It's about
16:42performing the skill, using your
16:44abilities. That's what leads to
16:46consistency.
16:47But, there's a framework that I use for
16:49the process of figuring out the strategy
16:51and it's one that I think every trader
16:53should understand and every trader in
16:55some way should be sticking to.
16:57The reason I brought up Richard Rumelt
16:59earlier is because this framework is
17:01actually based on something that he
17:02explains is at the heart of every good
17:05strategy. And it's what he calls the
17:07strategy kernel. And it's made up of
17:09three connected elements. You've got
17:11diagnosis, now you understand in the
17:13doctor analogy,
17:15guiding policy and coherent actions. And
17:17we could think of these as being a
17:18process that goes in this order. So,
17:21diagnosis comes first, then guiding
17:23policy and finally the coherent actions,
17:26which is the actual strategy, the
17:27actions that you're following in the
17:28market. So, let's walk through each of
17:30these one by one and I'll explain what
17:32they actually mean, what's involved and
17:34in that way you can think about how to
17:35adapt your own trading to fit within
17:37them.
17:38So, the first one, diagnosis, is
17:40basically your analysis. But not
17:43analysis in the way that people do it
17:44with a predefined strategy. It's not
17:46just about spotting, plotting and
17:48labeling things on the chart or waiting
17:50for a setup or waiting till the market
17:52matches your entry criteria. It's about
17:54fully interpreting and understanding the
17:56context. Looking at the unique
17:59combination of activity, both now and in
18:01the past, the cause-effect sequence
18:04behind it, then connecting the dots to
18:06work out what the current context
18:08actually is and what it's showing you.
18:10And from that, forecasting the potential
18:12scenarios that could play out from that
18:14point onwards and the probabilities of
18:16each one happening. That's how we figure
18:18out if something's even an opportunity
18:19in the first place because it's only
18:21with those things that we can assess
18:23whether there's really positive
18:24expectancy or not. You can't assess
18:27whether this situation in front of you
18:28has positive expectancy based on a past
18:31success rate. Just doesn't make sense.
18:33So, finding a particular setup or seeing
18:36that the market matches your entry
18:38criteria doesn't mean something is a
18:40trade opportunity. A setup is about
18:43timing your entry, but the opportunity
18:45itself comes from your analysis of the
18:47context. So, once you have your
18:49potential outcomes and your estimated
18:51probabilities of them, if there's
18:53positive expectancy, that's the sign
18:55that you have something that's
18:56potentially tradeable.
18:58And that then brings us on to the second
18:59element, which is the guiding policy.
19:02Now, Rumelt compares this to the
19:04guardrails on a motorway, but I think
19:06it's more useful to think of it more
19:08like a filter. Now, earlier in the
19:10video, I gave the example of a company's
19:13sales dropping. A big company and
19:15they're seeing their sales dramatically
19:16dropping over time.
19:18Imagine that company is Prada. Now,
19:21they're not going to massively slash all
19:23of their prices like those shops that
19:24have a permanent closing down sale all
19:26year round with big red stickers
19:28everywhere. There's no way they would do
19:30that. They're a high-end luxury brand
19:33and their brand positioning, their brand
19:34guidelines are going to forbid doing
19:36anything like that. And it's the same
19:38for any successful company. They will
19:39have things that they can do, things
19:41they can't do because of the type of
19:43company they are, because of their brand
19:45principles, their market positioning,
19:47their company values, their strengths,
19:49their weaknesses, all that kind of
19:50stuff. So, for your trading, your
19:52guiding policy is going to be mostly
19:54shaped by two things: your trading
19:56approach and your personal constraints.
19:59So, with the trading approach, at Dwoemo
20:01for example, we follow the Dwoemo method
20:04that's rooted in the Dwoemo market
20:05theory and that gives us clear
20:07principles for what type of actions and
20:10decisions are going to be logical and
20:12most optimal in the markets. This first
20:14leading us to find the sort of precision
20:15that we find. So, if you're using a
20:18different trading method, you'll have
20:19your own principles that you believe are
20:21leading to better performance. Then
20:23there are your own personal constraints.
20:25So, your own strengths, weaknesses,
20:28preferences, your schedule, your risk
20:30appetite, any skill and knowledge gaps
20:33that you have, any experience that
20:35you've built up, things that you've gone
20:36through. All of these things will shape
20:38what you're most capable of and most
20:40comfortable doing and what you're not.
20:42And that's exactly why at Tuomo, we
20:44don't have one set way that everyone has
20:46to trade. We work with our members to
20:49build a trading approach that suits
20:50their strengths, their availability,
20:52their preferences because everyone's
20:54different. If you want to get the best
20:55out of yourself, you've got to know how
20:57to do that. So, if you want to figure
20:59out your own personal constraints, there
21:01are two broad areas that you can look
21:02in. The first is to look at your life
21:05outside of trading, so outside of the
21:07markets. Things like what your schedule
21:09is like, how much time you actually have
21:11to trade, where those sessions can fit
21:13in cuz that's going to shape the type of
21:15opportunities you can go for, how you're
21:16going to manage your trades and all of
21:18that kind of thing that can affect the
21:19strategy.
21:20You can look at how much pressure you
21:22can handle before things start going
21:24wrong, how quickly you can make
21:26decisions without getting flustered,
21:28whether you're able to be patient and
21:29sit on your hands and not take action or
21:31whether you want to be sort of doing
21:32things all the time otherwise you're
21:33going to get fidgety. There's all kinds
21:35of stuff you can figure out about you,
21:37your personality, how you are.
21:39And then the other is through experience
21:42and honest journaling. So, tracking the
21:45situations in the markets that you
21:46handled well, the ones where you didn't
21:48and why. Like what situations felt
21:50comfortable for you, what situations do
21:52you think your ability matches well and
21:54others that you need to maybe practice
21:56to bring yourself up to the right level.
21:58So, for example, when you have all of
21:59this, it might be that your analysis
22:02showing that a situation could call for
22:04a very aggressive strategy. But if you
22:07know that you're highly risk-averse or
22:09you lack the experience to manage that
22:11scenario confidently and correctly, then
22:13your guiding policy might lead you to
22:15adjust your approach to something that's
22:17going to suit you a bit better and is
22:18maybe a bit less aggressive. Or let's
22:21say that you've assessed the potential
22:22scenarios and on the profitable side,
22:25there's one potential scenario that
22:27would be a direct move and one that
22:29would take a bit longer to play out as a
22:31slow burn kind of move. Well, if you
22:33know you want to be in and out of trades
22:35before the end of the trading session
22:37for whatever reason, then you're going
22:39to be planning your strategy around the
22:41direct scenario and you're going to be
22:43getting out of the trade if it becomes
22:44the scenario that's going to play out
22:46for longer, even if it's still going to
22:48be a profitable trade. That's not the
22:49strategy that suits you. So, that whole
22:52step is really important. Don't overlook
22:54it because to perform really well and to
22:57perform really consistently, the
22:59strategy that you choose for each trade
23:01has to fit the trader as well as the
23:03trade itself.
23:05But, making those sorts of assessments
23:07correctly is a skill in itself that
23:09needs to be developed as well.
23:11And then we come on to coherent actions.
23:13So, once you've diagnosed the situation,
23:16filtered through your guiding policy,
23:18you're left with the actual strategy
23:20itself, the actions that you'll be
23:22taking. Now, these actions need to be
23:24clear, so they're not open to
23:26interpretation in the heat of the
23:27moment. They're clear enough that you
23:29know exactly what you should be doing.
23:30They should be practical, so they're
23:32things that you can actually execute,
23:34not just wishful thinking. And they
23:36should be directly linked to the
23:38previous steps. So, they should actually
23:41reflect your analysis and your guiding
23:43policy, not just what you want to be the
23:45case, but what is reality. And listen, I
23:47just want to point something out that's
23:49really important here. So, I know that
23:51when I give all these extra details and
23:53really try to explain things, that the
23:55video ends up being a lot longer and
23:57some people get impatient and they don't
23:59really pay attention to the details.
24:01But, believe me, it'll be easier for me
24:03to go and record a quick short video,
24:05but the reason I include all of these
24:07details is because they are really
24:09important. I really want you to pay
24:10attention, particularly to those last
24:12three points that I made, because I see
24:14mistakes of them all the time and I have
24:16seen it destroy people's trading. And
24:18there's one example that stays in my
24:20mind all the time, which is one of my
24:22members who was actually doing really,
24:24really well. He got funded with multiple
24:26funded accounts, so he had between half
24:28a million and a million dollars in
24:30funded capital. So, there was a lot to
24:31trade with, and he had months where he
24:33was able to withdraw tens of thousands
24:35of dollars. He had one trade that made
24:37him like 30k or something in a single
24:39day. But, the problem is all of that
24:41just distorted his expectations. He saw
24:44that he could make huge money on these
24:46runaway trades that he could scale into
24:48aggressively, and suddenly those were
24:50the only trades that he wanted, which is
24:53perfectly understandable. And that's
24:55fine if you're only taking those sorts
24:57of opportunities and that you're
24:59analyzing the markets looking for
25:01opportunities that have the potential to
25:02be that sort of situation where the
25:04context is showing it, and then only
25:06taking those actions like the aggressive
25:08scalings when the ongoing context shows
25:10you that it's appropriate to do so. But,
25:12the problem is that wasn't what he was
25:15doing. And it's the same as what I see
25:17with many traders where it becomes a
25:19typical man with a hammer problem where
25:21every opportunity you see you think it's
25:23going to be that type of trade or you're
25:25you're trying to force it to be that
25:26type of trade. So, what would happen is
25:28he'd find genuinely positive expectancy
25:31opportunities, situations where he was
25:33right to be entering the trade, but then
25:35plan his strategy around them being
25:38runaway trades with these aggressive
25:40scalings. But, obviously most of those
25:42situations were just not that type of
25:44opportunity. The context would have
25:46called for a completely different
25:47strategy. And so, you can probably
25:50imagine how the story ends. He never
25:52broke his strategy, his strategy broke
25:55him. And that experience burned him so
25:58badly that as far as I know, he hasn't
26:00really come back to trading since then,
26:02even though he was doing so well before.
26:04But, hopefully he does come back, but
26:06you know, hopefully you can learn from
26:07his mistake as well. Now, when you look
26:09at the strategy kernel, hopefully you
26:11start to realize something here. That
26:13each part of that kernel depends on the
26:16right diagnosis. If you can't read the
26:19context properly and estimate the
26:21probabilities of what the potential
26:22outcomes are, there's nothing for the
26:24rest of it to actually work from. And
26:26being able to do that is a skill that
26:29you need to develop. It's not a rule
26:30that you can copy off someone else by
26:32implementing some predefined strategy.
26:34It also happens to be the thing that
26:36almost nobody teaches. Partly because
26:39they're not aware of it in the first
26:40place, but also because it's just so
26:42much easier to try and sell you a
26:43strategy. But, that's exactly what my
26:46free course will start to introduce you
26:48to. It'll take you through my logical
26:50approach to trading in a way where you
26:52can actually follow the logic for
26:53yourself, which means that you can reach
26:54your own conclusions about the right or
26:57wrong way to approach your trading, how
26:59to approach analysis, deciding on a
27:00strategy, all of that stuff. And it's
27:02completely free. The link's in the
27:04description box, the the top link there.
27:06So, bringing the focus back to the
27:08coherent actions, when you really think
27:10about it, there are only a handful of
27:12possible actions that are available to
27:14us as traders. So, at the points of
27:16entry, we can choose how we want to get
27:18in, limit orders, market orders, how
27:21much we want to have at risk, where our
27:23next decision points are going to be.
27:24And that sometimes will involve a stop
27:26loss for the potential negative outcome.
27:29Then, once the trade's open, we can move
27:31our stop loss, scale in, scale out, or
27:34exit the trade. And then, again, if you
27:36stop and think about it, all of these
27:38different actions are really just forms
27:40of risk management. You're either
27:42increasing or reducing your risk in some
27:44way. And so, that's why I also call
27:46trade management or strategy strategic
27:49risk management, because that's
27:50essentially what it is. And obviously,
27:52there's the possibility of hedging and
27:54using derivatives and things like that.
27:56But, I mean, just in terms of the
27:57basics, that's what we're looking at
27:58here. And although it's just a small
28:01toolkit that we have available to us,
28:03there are endless different ways that we
28:04can combine the different possible
28:06actions. And the skill is in knowing
28:09which combination fits the forecast in
28:11front of you and the statements that
28:13you're intending to make through your
28:14actions. But, with a predefined
28:16strategy, people will often have rules
28:18for all of these things. So, they
28:20already know where they should be
28:21placing their stop loss, where their
28:22profit target's going to be, how much to
28:24risk on every trade. Then, for trade
28:26management, they'll say things like
28:28"After it's moved a certain amount into
28:30profit, I'll move my stop loss to break
28:32even, so I've got a risk-free trade,
28:33which don't even get me started on that.
28:36Or once it's in profit, I trail the
28:37stop. So obviously, those rules are
28:39leading you to making the same decisions
28:41regardless of whatever the market is
28:43actually doing at the time or what the
28:45context should be showing you, and so
28:47you just treat every situation the same.
28:50But what a lot of traders don't realize
28:51is that every action and every decision
28:54that we make in the markets is making a
28:57statement. Whether we intend it or not,
28:59there is an implicit statement through
29:00our actions, and it should be that the
29:03statement we make through our actions
29:04aligns with what we believe to be the
29:06case through our analysis. So, the
29:09actions need to come from your analysis,
29:12not from some sort of rule book that
29:14you're following. Because in the end,
29:15that's all trading actually is. It's
29:17this ongoing process of analyzing the
29:19markets to understand the context so we
29:22can form a forecast, and then there are
29:24logical actions for each forecast,
29:27including when the forecast shows us
29:28that there's no positive expectancy, no
29:30advantage, therefore no opportunity, and
29:33the only logical action is to not take a
29:35trade at all. And so obviously, there
29:37are skills that need to be developed.
29:39But on the other hand, if you're
29:40following a predefined strategy and
29:42spending your trading sessions hunting
29:44for setups based on a set of entry
29:46criteria and then following a list of
29:48rules to enter, manage, and exit the
29:50trade, you're not developing any skills
29:52at all. So if you're not making money
29:54from your trading, there's no clear way
29:56that you can improve. Because even if
29:58you change your strategy, you're just
30:00swapping one fixed model for another
30:02fixed model, applying a fixed model to
30:05an ever-changing market.
30:07Take a look at those two diagrams again,
30:09the two models that we've discussed. At
30:11the top is what most people are taught
30:13to follow. And really, even though
30:15people call it a trading strategy, it
30:17isn't strategy at all. At a push, you
30:19could call it a playbook. And below that
30:22is genuine strategy, which comes after
30:24the analysis and adapts as the context
30:27changes. So to answer the two things
30:29that everyone gets wrong that I pointed
30:31out earlier in the video,
30:33where strategy fits in the process, it's
30:35after your analysis, never before it,
30:39and what strategy is actually for.
30:41Taking logical actions based on the
30:43forecast, so the statements you make
30:45through your actions are aligned with
30:47what the context is showing. Not
30:50treating every situation the same way
30:52just so you can be consistent. So, if
30:54you're new to trading, don't go and
30:56waste a load of time learning different
30:57strategies like I did and like so many
30:59traders do, learn how to read the market
31:02and interpret the context first, and
31:04then the strategy will start to take
31:05care of itself after that. And if you've
31:07been trading for a while, then hopefully
31:09now you understand why changing
31:11different parts of your strategy or
31:13swapping to a brand new strategy really
31:15hasn't fixed things long-term for you.
31:17So, instead, the free course that's
31:18linked in the description box is a great
31:20place to start if you want to begin
31:21developing the real skills involved in
31:24successful trading. And on screen now
31:26you'll see a couple of videos that are
31:27related to what we discussed today,
31:29including one of the ones that I
31:31mentioned earlier. And hopefully now,
31:33the next time that someone asks you,
31:35"What strategy do you follow?" you
31:36already know the right answer.
31:38Show me the chart first.

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