1. First, forecast the flow of capital across the world based on Global Macroeconomic Analysis. This should give us an idea of the main global capital movements, and what markets will give us the best opportunities to execute trend-following strategies.
2. Once we have identified our target market via Global Macroeconomic Analysis, we can use technical analysis to employ High Loss Rate Strategies to control risk and optimize profits in this trend. Getting in the High Loss Rate mindset is vital to the successful execution of this strategy.
3. Then, we can conduct Lifestyle Integration to determine how trading fits into our life. This helps us get into the flow of trading, develop discipline, maintain psychological poise so that we can succeed in trading, and identify what timeframes we will be trading.
The next step is to carefully define your risk.
By carefully understanding our risk, we know exactly how much capital is being risked due to trading. This keeps our psychology and our accumulated wealth in much better condition.
I prefer to start this process by thinking about my Lifestyle Integration, and what timeframes I can trade. I then setup a separate trading account for each specific timeframe. Currently, there are three timeframes I trade:
- Intraday (primarily 15 minute)
Below is my risk tolerance per trade for each account:
- 1. On the weekly, I risk 4% per trade.
- 2. On the daily, I risk 2% per trade.
- 3. Intraday, I will risk 1% on trades placed on the hourly chart, and 0.5% on trades placed on the 15 minute timeframe.
Each account is related to my overall strategy in that my participation in one account affects decisions in the other accounts. I will get into the mechanics of order entry and exiting later when we delve into the technical analysis portion of this series.