A good trading system after long time use will bring profits instead of losses. However, even the most perfectly designed trading system cannot guarantee every successful trade. There is no system to guarantee that you never lose. Therefore, establishing a good capital management plan for the holy grail T.L.S strategy is essential for a long-term making money journey.
The importance of risk control when trading with T.L.S strategy
One of the worst mistakes traders make is not controlling losses. Newcomers often lose their minds after experiencing prolonged losses that wipe out their previously achieved profits. They are not aware of what they will do next to improve the situation in a positive way.
As a human instinct, people often take profits very quickly but admit losses very slowly. So on, until the account can not stand the series of prolonged losses or worse (gone out of capital).
To become a successful trader, you need to learn how to manage risk and follow discipline after having a stable trading strategy.
Emotions are the enemies of traders
Money always gives rise to many emotions. When you experience bad emotions, the possibility of losing increases and damages the outcome of trading.
Those newbies to trading often rush to open orders based on transient emotions. And they will quickly realize that the market is a tough game.
A professional trader takes hours to identify signals, calculate risks, and record results. This is boring work but takes a lot of time. However, if you want to succeed in trading, you must do these jobs sequentially. Most of the new traders and gamblers do not like this.
Get rid of bad habits during trading with T.L.S strategy
Another emotional mistake when entering a trade is counting money while trading. Amateurs often think of using profits to buy something. Assessing the loss in a trade equal to how many months of salary is downright wrong. Professional traders always focus on risk management. They only take profits after the end of all trades.
If you ask me how to open an order, I can answer you effectively. But if you ask me to make a certain profit, I can hardly do it. I have trained myself to break bad habits like counting money while trading. It is like dieting. There is always good food around you but you need to control yourself.
Focus on managing your trades. And the money will come after you finish them in the best way. Professional traders do not get excited by the profits or losses in each trade.
Stubbornly making emotional transactions only deepens the wound. This loss is like a snowball. It starts getting bigger with each trade if you do not know how to manage.
Accept the game of probability
The inability to calculate means you do not have a basic understanding of probability. This can be considered as a fatal weakness for financial traders. Calculating skills are not hard to learn from some basic theory books. Then, sharpen it by practicing.
Remember, very rarely is there anything certain in market analysis. Everything is mostly based on probability. If signals A and B appear, then the result C will occur. However, this is only a certain probability number.
Mathematical expectations are also an important concept for traders. A trade with positive expectations is also known as a trader’s advantage. Or negative expectations are the broker’s advantages. It depends on who makes a better bet in the game of “money”.
If you and I toss a coin, neither of us has the advantage. Each person has a 50% probability of winning. But if you play a similar game in the casino. There, you only have a 5% chance of winning. This is the “broker’s advantage” and creates negative expectations. No money management system can beat negative expectations over time.
How to create positive expectations?
Why do casinos ban good poker players? Because these players have an advantage against them. Over time, having a skill or advantage will offer more wins than losses. If you do not have the advantage, I recommend saving money for charity rather than bringing it into a trade. In trading, the advantage that comes from the system generates greater profits than losses after a period of time. Acting on emotions will lead to a loss.
The best trading system is usually simple and sustainable. They have only a few elements. A complex system will face more risks.
Once you have a functioning trading system, this is where you should establish money management rules. You can only win if the system has positive expectations. Risk management helps you to exploit a good trading system, but cannot fix a bad trading system.
Accept and manage risks in trading
We analyze the market to identify trends. Be careful. Do not be overconfident when predicting future price action. The future is unknown to anyone.
Professional traders accept the so-called “risk”. This means that the amount of money he accepts to bet on risk only slightly reduces the capital. On the contrary, a loss can greatly affect the account balance or even empty it. We must draw a clear boundary between risk and loss. This boundary determines the proportion of balance that traders can risk.
If you follow the rules of risk management, you will accept it normally. When you break this red line, you will encounter big losses.
Identify risks and prepare an additional plan
If financial trading is to walk on a thin rope, a lower safety net is always required. If we fall, the safety net will help us avoid falling to the ground painfully. Try setting up 2 safety nets in case the first doesn’t work.
Even the best-prepared traders can fail due to market randomness. Or the most obvious analysis and trading signals could not always help us avoid failure. What you can do is to control risk closely. You can do this well by managing the size and volume of a transaction. This allows us to encounter only small inevitable losses. But it will not collapse your account and this will help you win in the long run.
A safe capital management method for T.L.S strategy
With experience drawn from trading time in the financial market, I choose to manage the capital with the Classic method.
Classic is a capital management method where you take the initial capital to divide by the total number of orders you trade.
For example, With an initial capital of $500 and the maximum limit of 10 orders per day, the investment amount for each trade will be $50.
You have accepted the risk of $500 for 10 orders in a day. This can be reduced on accounts with less capital. To make a profit, we need to use a trading strategy with a 60% win rate. And it will make you never lose in trading based on statistical probability.
I use only one trading strategy which is T.L.S including Trend -> Levels (resistance/support) -> Signal. You can review the article What is the holy grail? Is the T.L.S strategy worthwhile? for details.
Review a trading week from June 22 to June 26, 2020 with T.L.S strategy
T.L.S strategy formula
Open HIGHER orders when: Uptrend + Support zone + Trading signal (reliable candlesticks or candlestick patterns).
Open LOWER orders when: Downtrend + resistance zone + Trading signal.
Analyze losing orders
Today, we will analyze the losing orders to draw out the lesson.
Why don’t we analyze winning orders also? Because winning orders are obvious. Regarding how to open that order, you can review the description of opened orders on the charts. We analyze losing orders together to know why we lost so that the next time we will not repeat it.
The 5th order
The trend was up then switched to a sideways trend. The price penetrated the important resistance zone and continued to form an uptrend. The price then returned to test the support. Right there, opened a HIGHER order predicting further price increases. But the price failed to form an uptrend. And the prediction was wrong.
We had had a correct “win” order but the result was not as expected. I called it a “win” order because I followed the rules of the T.S.L strategy standardly. I lost because the market was not as expected of the strategy. I accept it because this is a game of probability. Nothing is correct forever.
The 6th order
The trend was down stably through consecutive bearish candles. The downtrend slowed down, creating an important level. If it wanted to continue the downtrend, the price must have broken this support.
The price broke out of the support and then returned to retest the level just passed. There, I opened a LOWER order when the candlestick closed. But the price had reached the end of the downtrend and then rebounded, making my prediction incorrect.
These may also be considered as risks that exist in trading because the future is unpredictable. Markets often demonstrate things that you cannot imagine. Instead of sitting in resentment or angry with the desire to get revenge, accept it normally. Focus your attention on the next orders no matter what the past is.
The last lines
That’s the T.L.S trading strategy and its capital management method. However, it is not enough. There is still one thing that no instructor will teach you when trading. That is the psychology in trading when participating in financial markets.
Rather, it is how to prepare psychologically when using that strategy. Imagine you have all the support equipment but you are afraid, how can you win the market? That is the key and also the last piece to complete the “Holy Grail”. In the following article, I will write in detail for people to imagine the importance of alertness in trading.