How to Achieve Lifestyle from Trading

Do you wish you could spend less time in front of your screens trading and more time doing the things you love? Travis McKenzie is one trader who has managed to do exactly that and in this month’s Traders’ Magazine he explains to their readers how he achieved it and outlines one of his trading strategies.

For the complete transcript of the interview with Traders’ Magazine click on this link to see the online magazine: Traders’ Magazine

TRADERS´: What do you think was the most important lesson on the way to becoming a professional?

Travis McKenzie:  During my trading career there have been 3 very clear ‘aha’ moments which really changed the way I traded which were instrumental in transforming me into a professional trader.

The first ‘aha’ moment occurred when I asked myself what was a realistic return I wanted to achieve on my trading account each year. I thought that if I could make anywhere between 50% - 100% per year then I would be extremely happy with those returns especially if I could do that year on year for the rest of my trading career. I then broke that down into bite size chucks and I realised that if I risked only 1% of my account on any one trade and aimed to make at least 1% profit per trade (ie a reward to risk of at least 1:1 per trade) then I would only need one profitable trade per week in order to make approximately 60% per annum (compounded weekly). This realisation instantly took the pressure off. Instead of trying to day trade and place lots of trades each day I realised that I just needed to become more selective about which trades I took and focus on finding that one or two perfect trades each week.

This then lead me to have my second ‘aha’ moment which was when I realised that I had been mislead by the so called “experts” in the books and seminars I had been reading and attending into believing that there was only one style and market that I should be trading if I wanted to make consistent profits. Upon realising that I only needed one or two good profitable trades each week this made me question why I was sitting in front of my screens day trading for 10 hours a day. At this point I assessed what lifestyle I wanted trading to give me and for how long each day I wanted to trade and at what times. I then let those factors decide for me what markets I should be trading. I stopped day trading and instead started to swing trade stocks off daily charts, swing trade commodities off 60min charts and above and day trade and swing trade forex off 15 minute charts and above. This change allowed me to dramatically reduce the number of hours I was spending in front of the screen each day and allowed me to scan across a large number of markets and timeframes in order to find the very best trading opportunities. Quality of the trade, not quantity became my new focus.

The 3rd “aha” moment occurred when I realised that keeping a spreadsheet of my past trades was useless in assisting me to become a better trader. It was cumbersome when trying to review my trades at the end of the week, month or year as it meant I had to trawl through my charts looking for the exact location where I got into a trade and then I could see the result which always affected how I would now assess the trade during the review. As it was a pain, I usually ended up not doing any sort of meaningful review of my past trades.

Someone then suggested that I take live screenshots of my charts at the exact time I placed an entry order. The two biggest benefits of this was that it meant when I went to review my trades I no longer had to trawl through my charts trying to find the exact location where I got into the trade and it also allowed me to look at exactly the same set up I was looking at when I took the trade. This allowed me during my reviews to see if I flawlessly executed my trade plan regardless of what the trade’s outcome was.

One of the keys to improving your trading is that you flawlessly executed your trading plan. Taking screenshots will allow you to do that. Stop focusing on whether the trade was a winner or loser and focus on flawless execution instead.

TRADERS´: What is your edge in trading?

Travis McKenzie:  I’m not trying to pick tops or bottoms. 95% of my trades are taken in the direction of the trend, so I’m happy to find a trend and take a small chuck out of it. This is why I focus so much on scanning a large number of markets and timeframes as this gives me the best opportunities to trade those markets that are trending beautifully right now.

In my opinion one of the biggest mistakes traders make is just focusing on one market and continuing to trade that market when its conditions are no longer favourable. Whilst their market of choice is trending they will often see good profits, only to give all those profits and more back when that market enters into a period of consolidation or erratic volatility. The question I always pose to traders in this situation is “why not just focus on markets that are trending right now and ignore the rest? Stack the probabilities in your favour by only trading trending markets”.

Whilst that might seem like a small edge, I have found that it’s sometimes the most obvious things that traders ignore and that is why they struggle to make consistent profits.

TRADERS´:  Please could you describe a few of your trading strategies/setups?

Travis McKenzie:  Let me introduce you to what I call my Precision Lifestyle Trade (PLT). The set up was specifically designed so it could be traded across any market and any timeframe. It has 8 essential factors and another 12 bonus factors. I’m happy to discuss a few of those factors for you. This strategy can be traded long or short, I will just discuss the set up on the long side. You will notice in the screenshots I have provided that I have cut off the axis so you don’t know what timeframe or market I am taking the trade on. I do this on purpose whenever I teach traders this strategy because I’m trying to reinforce the point that a chart is a chart and it doesn’t matter what market or what timeframe it is as I will still trade the strategy the same. I have provided the live screenshot I took as I placed my entry orders.

The 1st essential factor which I apply to all my strategies and which assists in dramatically reducing scanning time is to only trade markets that are currently showing what I term optimal chart structure. What I mean by this is that I want to find a smooth flowing chart that is trending or ideally just starting a trend. I don’t want charts that have a history of gapping, erratic price action, long tails on the candles or no trend. Regardless if a chart meets all of my other remaining 7 essential factors if optimal chart structure is missing then I move straight onto the next chart.

The 2nd essential factor is that price must be trending on your set up chart and at least the next higher timeframe. I establish trend by using detailed price action analysis. You don’t need fancy indicators to tell you if a chart is trending or not, all you need to know is contained in the price action itself.

The 3rd essential factor is that price must have pulled back to what I refer to as the buy zone. This is based on a combination of price action analysis and moving averages.

The 4th essential factor is that you need a small candle to form in the direction of the trend, ie green candle for a long.

In addition to these 4 factors I have another 4 essential factors that must be present before I would even consider taking the set up and another 12 bonus factors which will tell me which of those trades that passed the essential factors are the very best trading opportunties.

My entry criteria is very simple. I am looking for the next candle to break the high of the set up candle. I will place a buy stop one tick above the high of the set up candle with my stop one tick below the low of the set up candle. In order to free up my time I’m setting my orders up and then walking away from my screen. I never enter this set up on a market order.

I have no hard and fast rules for my profit targets as I typically will allow the chart I’m trading off to indicate to me where sensible profit targets might be. This could mean I scale out half of my position at a reward to risk of 1:1 and then trail my stop below the most recent swing low for the remaining half. Or I might go for a much bigger run on my first half before scaling out. It’s important that you let the charts tell you where to put your profit targets and not try to force your opinion or rules upon the market.

As my stops are reasonably tight for this set up, it means the win to loss ratio is reduced. But I find this is more than compensated for by a very high reward to risk ratio. So it’s important with a strategy such as this that you let your winners run as far as possible.

TRADERS´:  What is the course of events on one of your typical trading days?

Travis McKenzie:  I typically scan the forex and commodity markets about 5 times a day. I try to evenly space my scans out over the time from when I wake up in the morning until I go to bed at night. Each scan only takes me about 15 - 30 minutes so this isn’t a huge drain on my time.

When trading stocks I always ensure I am at my screens for the first 15 minutes of the session. The reason being I don’t like to place orders outside of market hours just in case the stock I’m thinking of trading gaps the next day on open. If you have your orders in the market you may be entered into the trade at a much worse price than you wanted. I’m very strict on my money management rules so I have to be 100% sure that I’m getting in at the price I want. But once the markets have opened and I’m happy that the stocks I’m watching haven’t gapped I will then put my orders on and walk away and I typically won’t look at them again until the next day. The Australian and UK stock markets are my two preferred markets as they fit in well with my lifestyle and when I wish to trade.

My style of trading leaves me with plenty of spare time to spend on my other business interests such as Trade With Precision where I pass on my trading expertise to other traders.

TRADERS´:  What do you think is the best point or idea for new traders to start with? Where do you see the pitfalls?

Travis McKenzie:  It took me many years of losses before I had my 3 “aha” moments discussed above. Whenever I’m working with a new trader I spend a lot of time with them discussing those 3 points in detail and making sure they fully comprehend the importance of them. So I would encourage all traders who aren’t at the level they would like to be with their trading to sit down and spent a good day really thinking about those points. I know I would have shaved many years of my journey to becoming a professional trader if someone had explain those 3 points to me at the start of my trading career.

For the complete transcript of the interview with Traders’ Magazine click on this link to see the online magazine: Traders’ Magazine

Regards,
The TWP Team
www.tradewithprecision.com

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