How to Build a Profitable Trading Strategy — Step-by-Step Guide & Transcript

[00:02] profitable trading strategy. Let's begin. [Music]

[00:23] What's up, friends? How are you? It's a pleasure to be here another week on the Fernando Arias Psychology and Trading Podcast. We're going to start today's podcast where we'll talk about something very interesting: how to create

[00:35] a profitable trading strategy. Okay, before we begin, as always, we'd like to thank the sponsor of this content. You know it's the broker I use daily, and they offer the

[00:48] wonderful Pro Realtime platform, which is also included in their services. So I encourage you to open a demo account. You can try it out; there's a link here. You can get an unlimited demo so you can test everything you

[01:01] want. Also, very importantly, you'll have access to real-time volume data without having to pay anything extra. We've talked about volume in previous sessions, and as you know, it's very, very important. So important, in

[01:15] fact, that we're going to do a webinar next week—I'll announce it on social media—on Wednesday the 26th, where we'll talk specifically about volume and how I use it in my trading. Okay, let's go! I'll also leave a link so you can

[01:28] register and attend without any problems. Okay, we've said that, let's get to today's topic, the one at hand, which is how we can create a profitable trading strategy. Okay, well, first of all, we have to, let's

[01:45] put it another way, what kind of trader we want to be. By this, what I mean is that to strategy, what we can't do is one day go and look for a 1:1 ratio. Today I think the market is going to keep going up or down,

[02:13] strategy that's properly tested, and there's no way to do a proper backtest to know if it really works. So, first, works. So, first, define a time frame, define a market,

[02:27] define a time frame, define a market, define a type of trading, and design a strategy for that type of trading. Once you have that, we'll create a new strategy, doing the same for different types of trading. Okay,

[02:40] point number 2: context is the most important thing. Regarding the context, obviously we're including volume. You have to have a very global view of the market, of zones. You have to be very good at detecting the zones, and when this isn't

[02:55] very well structured, that's where we're going to look for an entry pattern, a perfect moment, a candlestick we like, something that makes us enter the

[03:07] market, not as if it were our entry trigger. It's important entry trigger. It's important that this market entry trigger is in a significant zone. What's a very common mistake is that we look for

[03:21] trades with patterns we've been taught and so on, in the middle of nowhere. So, most likely, that won't work for you. But combine this with the volume context. If you look for a specific pattern in a relevant zone,

[03:37] the probability of success is very high. Okay, the next point you have to do is define your risk very well. What ca n't happen is, as some of you mentioned last week, in a trade that went wrong

[03:51] because it was a swing trade, the stop loss should have been bigger. The trade went wrong due to a misreading of the context, and two weeks' profit was lost. And it was because, of course, since the stop loss was bigger, I had to

[04:05] risk more. No, it doesn't work. So we have to work with lot sizes and always risk the same amount in any type of trade. It's also very interesting if you work with different strategies. Perhaps opening different

[04:20] accounts is a good idea. You don't need a ton of money in all of them, just enough capital to allow you to play with the margin and be at ease. It's worth having to worry about that. For example, I have an account

[04:32] day trading, and an account for scalping. So, depending on the type of trading I do, I use one account or another. Why? Because otherwise they conflict with each other. I can better see my statistics, and above all,

[04:45] we also avoid problems with margin and other issues. Having said that, let's define an operational plan. That is, we have to put everything we've discussed into a document, a trading plan. And most importantly,

[04:57] define your order structure. How many trades am I going to make per day? How much What happens if the first one is a winner? What happens if the first one is a loser? What happens if I miss a stop loss for three days in a row, or if my profit is triggered three days in a row? When am I going to make withdrawals? When is

[05:14] all of this what we have to design? That's what we need to need to agree on, and finally, once you do that— well, sorry, once we've done this— we have to do a test, obviously,

[05:27] we have to do a test, obviously, going back months and months and months and see if this really works, okay? And what results do we get? We can't just what results do we get? We can't just rely on the results of one day or

[05:40] not like, "Look, what happened today worked," but what happens today is completely irrelevant to me. What I'm interested in knowing is what happened today, yesterday, the day before yesterday, and over a historical period. And once you see that it

[05:55] works, we're going to apply it, but we're going to apply it for at least two months. It's no good to learn a method,

[06:07] learn a strategy, create it yourself if you want, I don't care, and then after two weeks you see that it doesn't have the expected results because you're still adapting to that strategy. You're already changing your strategy, and you're already

[06:20] looking for other things, already making modifications. You have to trust your strategy, and you have to give it time for the statistics to work. trend-following strategy, and we've had the market in a

[06:33] fairly wide sideways range for a couple of weeks now, like we've had lately. It might work for you, or it might not; it might not work the same way the work for you. Perhaps we need to identify a strategy or create a

[06:48] strategy for trading in ranges. This is a little bit of what we need to separate: each style, each market moment, each market timing has its own trading style, its own moment, and its own strategies. That's what

[07:02] we're working on and will continue to work on in " Transform Your Trading." You know that's the mentorship program we're starting on May 10th. Okay, I'll leave this here so you can see that registration is already open. Okay, we'll start,

[07:15] as I said, on Wednesday, May 10th, with 10 theoretical sessions and then, most importantly, a new practical session each day before the market opens, from 2:30 PM to 3:30 PM Spanish time, where we analyze the market, identify

[07:30] potential conflict zones, help you understand that context, correct 've made, and obviously provide all the psychotrading support you need. Okay, we have a

[07:43] launch offer with a 25% discount already applied if you join... You'll see the website soon. We're about to reach the limit for the first 25 registrations, but we still have places available at that price. This is what's really

[07:57] adding value and allowing traders who have already completed the club to start seeing results. Why? Because we work on what we're discussing today: one strategy for one type of market, another for another,

[08:11] another for swing trading, another for intraday trading, another for scalping, another for gold, another for this, another for that, and another for each of the markets. Can you do that yourself? Of course you can. Of course you can. You can do a series of backtests. You can

[08:24] learn and interpret all of that, and you can do it yourself. Transform your trading. I'll explain how to do it in each case. And the most important thing for me is that I

[08:38] most important thing for me is that I help you adapt that strategy to your life, your schedule, your risk management, or your risk aversion—something that's comfortable. Because what you also can't do is have someone teach you a

[08:52] strategy and you say, "Okay, I'm going to copy it verbatim." That doesn't work either. Because each of us is different, and therefore each of us will have a different risk tolerance, okay? Well friends, I hope you

[09:07] enjoyed it. Just a reminder that this week's topic is books, if I remember correctly. For those of you who don't have it yet, I think I'll leave the link here: "How Not to Burn Out an Account." You know it was awarded Best

[09:20] Trading Book of 2022, and if you still don't have it, take a look. Because the truth is, I was looking at it yesterday, and I think it's the book with the best reviews on Amazon. Of best reviews. So, you can take a look, and if not, you can

[09:34] get the first block of seven chapters for free in the traders community, right? It's in the "Psychology and Trading" section, under "Free Trading." That's all, friends. I hope this podcast has helped you

[09:48] rethink what you're doing and see how to design a profitable trading strategy. See you next week. A big hug, bye! A big hug, bye! [Music]