321
A
trading system that works!
Introduction
Many people search in vain for a trading system that will guarantee success but with little luck. Yet there are systems that work and work well. This is a method that I have developed over a long time in financial markets and one that I have found has worked for the long run and also managed to protect capital in the process.
Like all good systems it is relatively easy to apply and easy to manage. The entire process is designed to remove the stress and emotion from trading which is the single biggest killer of traders. Traders that complicate markets do so at their peril because they basically end up with a process where they remain emotionally attached to the trade but also emotional tied to their original thought process. Thus they will be able to find a reason to justify their fast deteriorating position. This is the process of hope rather than logical appraisal. The 321 method is designed to place a trade with predetermined parameters that should not be altered except for the stop loss being reduced. This is applied from the outset and as such the trading system can be switched off and only checked to see if the trade is completed. This is because there should be no outside influence to the trade because this would restore emotion into trading.
The concept is to turn the trader from the Punter at a casino and move him to being the Banker at the Casino. So often many systems place the trader with odds that are less and even and this is why so many end up losing. The need to always be on the winning side of the trade is paramount for most trading. Yet with this system winning every trade is not a perquisite even winning 50% of trades will guarantee a positive result.
So
How does it work?
The answer is in the name 321. The profit target must always be at least 3 times the stop loss price. This gives the trader the advantage over the market. No longer are you looking for 20 pips and risking 60 pips as some of the competitors are placing you too, we want you to be in a position to win not to win 3 trades and then lose two and be in a serious negative and fighting to recover. This is a problem that many traders face and it is again an extension of further emotion rather than stripping the emotion from trading. The entire system is based on the concept of removing risk, stress and emotion.
Here is
a simple example of how the system works, risking 1% of trading
capital on each trade:
|
Lose trade |
-1% |
Lose trade |
-1% |
Lose trade |
-1% |
|
Lose trade |
-1% |
Lose trade |
-1% |
Win trade |
+3% |
|
Lose trade |
-1% |
Win trade |
+3% |
Win trade |
+3% |
|
Win trade |
+3% |
Win trade |
+3% |
Win trade |
+3% |
|
RESULT |
0% |
|
+4% |
|
+8% |
As you can see, you would have to lose three trades in a row but win one at the end and the return is flat. As the trading moves to a more normal pattern of 50% or 75% of trade wins then the profitability comes in with a vengeance. We do see taking larger percentage risk as dangerous and would recommend that traders stick to limited risk of not more than 5% of trading capital even this would in our opinion be a very dangerous practice. We recommend no more than 2% risk of capital on any trade.
Trading philosophy is one aspect but determining the trade is
completely different
Trading philosophy is only the core of the system, the basic rules that must be applied if the trader is going to be successful. Behind this comes the actual trade determination which is far more complex.
We use a proprietary system of Gann and Harmonics and some clear defined rules that are replication signalling or trend termination signalling or continuation signalling. This system has taken over 27 years to develop and is not a black box (expert advisor system) derived out of predetermined algorithmic modelling of standard oscillation signalling and other known exhaustion or trend driven signalling. These systems ultimately fail as they are not dynamic to markets. Our methodology is predictive to future price structuring and not a reactive system which most expert advisors and black box algorithmic models are.
We believe that our system is highly accurate and has produced many strong calls in the past. Whilst past performance is not a guide to future performance this system has been well tested over the course of the last decade and has been able to find the largest trend changes during this period and many apex points within the market. We believe that the system has the ability to give us an edge over the competition to find definable trades that are not dependant on following the crowd.
The system can and has been applied to all asset classes in the past and has been accurate in all of them. The only issue that the system demands is that the market is transparent and has depth of market. Thus it cannot be used in markets that have limited or no volume. However, it can be applied to stock indices, bonds, equity (top 500 companies), Commodities, and all FX markets.
We do on the weekly summaries of the markets from a technical view post some of the charts with the most relevant lines placed on them. This is for educational purposes rather than as a full explanation of the entire system, as it is not possible to explain every rule exactly.
Part of desire is to educate as much as just produce trading ideas. This is what our weekly reviews will be aimed at achieving. Most competitors place a view with no conceptual explanation to it. We want our clients to grow in experience and understanding with us, so we believe in explaining as much as we can to the concept of thought behind the process.