Swing Trading Framework (Intro) Prepared for: Pro Trader Subscribers Prepared by: Paul Andre Prepared at: October 31, 2018 EXECUTIVE SUMMARY Objective: The main objective with this framework is to summarize 10 years of experience trading financial markets into an easily understandable technical framework that can be applied to any liquid asset class. Goals: The goals I have for this framework is to compile the main principles of successful swing trading, outline the common pitfalls that come with discretionary trading, and help traders maximize returns by understanding the interconnectivity of time & price. Win Rate Required Risk: Reward 25% 3:1 33% 2:1 40% 1.5:1 50% 1:1 Investment Strategy: The investment strategy provided within this framework will focus on swing + position trading with an average time-horizon of (1 week - 3 months), preferring quality over 2 of 9
quantity, and dialing in on asymmetric risk:reward setups. Project Timeline: Due to the sheer amount of content required for this framework, a staggered release will be implemented. Intro (October 31st) Price (November 7th) Time (November 21st) Interconnectivity (November 28th) Trade Entry (December 12th) Trade Management (December 19th) LESS IS MORE It s important to understand that the #1 pitfall you will face with trading is overcoming the compulsion to overtrade, as there is a common tendency to view trading through the lens of a traditional career path; where the more effort you apply, the more reward you tend to receive. With trading, it s often inverted - where the more you attempt to do, the further behind you tend to fall, as you will inevitably resort to taking lesser quality positions to fulfil your need to trade. 3 of 9
The most common misconception is that day-trading will yield higher returns than swing trading, because you are placing more trades, which should result in higher returns. This is a one dimensional thought process as you re not taking into account the Risk side of the equation, or your risk-adjusted return. RISK-ADJUSTED RETURN Example: Trader A: 3 Trades Placed At 1% Risk - Total Return of 5% Trader B: 1 Trade Placed At 1% Risk - Total Return of 3% Although the returns were higher for Trader A, the total risk taken to achieve a 5% gain was 3% of the trader s total capital, with the worst case scenario being a total loss of -3%. In comparison, Trader B s return was lower at 3%, however, their total risk of loss to achieve that 3% gain was only 1% of total capital available. Although Trader A generated a higher return, his risk of loss far outweighed the gain with an average risk:reward of 1.66; whereas Trader B had a much better riskadjusted return with an average risk:reward of 3:1. 4 of 9
It s important to understand that your goal should always be to reduce your total risk exposure, while increasing your reward for each position you take; all while throwing out the lower quality positions. My personal preference is to take nothing less than a 3:1 position as this allows me to be wrong over 70% of the time and still turn a profit. YOUR 1% RISK MATTERS Yes, a taboo subject, but I want to bring to light that the total dollar amount you risk per trade is going to have a direct impact on your trading psychology, and is actually one of the main drivers of overtrading. Let s face it - If your 1% risk is $100 per trade, you re going to have a compulsion to want to trade more frequently to build up your account quickly, compared to someone whose 1% risk per trade is $10,000. This is not to discourage anyone just starting out, but it s important to treat your account as if you re already trading a million dollar balance, no matter the dollar amount you re starting out with. The reason this is so important is it forces you to implement good habits from the outset, allowing yourself to build up the confidence required to stomach larger dollar amounts moving forwards. 5 of 9
Although it s taught that you should treat all 1% risk the same no matter the $ amount, I can tell you from personal experience that 3% netting you $300, feels much different than 3% netting you $30,000. With that being said, the quickest way to account growth is by trading with good habits from the outset, giving yourself time to develop experience as a trader, applying consistent capital injections into your account, and realizing that this is a skill for life; not a get rich quick scheme. I have found that once your 1% risk reaches $1,000 - you really start to hit a flow within your trading routine as the confidence built from winning & losing that amount of capital provides tremendous experience. The most efficient strategy towards developing a positive equity curve in your trading account is to hone in on supreme discipline within your trading routine, while turbocharging your account growth with consistent capital injections. I also highly recommend starting Stage 2 Financial Independence as quickly as possible, so you can have capital working for you in the background, as you wait for supreme technical FX setups to speculate on. 6 of 9
LIST OF BAD HABITS TO ELIMINATE Attempting to turn $10,000 into $1M overnight. Focus on capital injections instead Chart watching. Check in with your trades only twice a day Over trading. Only focus on supreme technical setups FOMO. Never worry about the trades your peers have taken Lack of patience. Remember, it takes a full 24 hours for just a single daily candle to form Searching for trades. The best trades always jump off the charts, if you re searching, no trade is present IT S JUST A TIMING MECHANISM The final subject I want to touch upon before jumping into the mechanics of price is to clear up the confusion on what intra-day price action represents, why we utilize it, and how it still revolves around the daily time horizon. The most effective way to view the intra-day charts is as a timing mechanism for placing swing trades, giving us an additional filter to identify potential bull & bear traps on the daily time-frame. 7 of 9
As Above, So Below: What many traders tend to overlook is that although you may be trading the 1H or 4H time horizon, you are still trading within the daily price bar that is being formed for that trading day. Unless you re entering a position and taking profit within the same 24 hour period, any crossover into the next trading day is technically classified as swing trading. This is why Benny often mentions that the style he teaches within the live trading sessions is Hybrid Swing Trading. The reason I always refer to the intra-day time horizon as a Timing Mechanism, is that the trend will always change from the bottom up, which in turn will be reflected back onto the higher time-horizons as time passes. More on this later Example: If the daily time horizon is moving into a high as price decelerates, forming a daily reversal candle, we can then jump down into the intra-day time horizon to see if the trend is actually changing. If we jump down into the intra-day chart and see a head & shoulders developing, not only do we have confirmation of a potential trend change about to take place, we 8 of 9
can also time the daily reversal candle on a break & re-test of the head & shoulders neck-line that took place intra-day. Time & Price: When it comes down to it, successful trading is riding the wave of time & price alignment, while having the discernment to filter out good vs bad trades. My goal with the next phase of this framework is to outline how I size up a trade from the ground up, outlining what value in price represents, showcasing intra-day timing, and displaying multiple trade management strategies that have left me in good stead. Next phase November 7th 9 of 9