What “Works” Can Vary Drastically From Trader to Trader and Market to Market:
When new traders are just getting started, they typically want to be handed a strategy/system that “works”. But what works for one trader might not work for another – and what works in one market might not work in another. It’s just not that simple.
It sounds nice when a trading guru claims they have a magical pattern that can make them (and you) millions of dollars like clockwork. But it’s nonsense. Basic patterns/setups like doji candles and double tops mean close to nothing on their own. You also need context.
As a prospective trader, understand that there are many factors at play. Each individual brings in their own personality, risk tolerance, account size, schedule, mental strengths, market experiences, trading skills, and more. There are no two traders exactly alike.
Then there are numerous markets: equities (with thousands of potential stocks to trade), forex (with hundreds of potential currency pairs to trade), futures (with dozens of potential contracts to trade), and more. No single strategy works the same in each environment.
Trading small cap stocks is different than trading large cap stocks. And trading S&P 500 futures is different than trading NASDAQ futures – which are both different than trading Crude Oil futures. Effectively trading each one requires experience and nuance.
So stop falling for the hype on foolproof/magical out-of-the-box systems – and start tracking your trades like a real trader.
Specific Trade Data/Information to Track For Every Single Trade:
It’s completely up to you to decide what you want to track and how to go about doing it (pen and paper, Excel spreadsheet, software built specifically for traders, or some mix of these), but there’s some basic information you absolutely want to be tracking:
- Profit Target
- Risk-Reward Ratio
- Key Levels
- Sector Conditions
- Market Conditions
All of this might seem like a lot – and it is – but understanding and analyzing this context is what allows you to refine your process and improve performance. You have to look beyond basic candlestick patterns and setups for confluence.
For example, taking trades on every double-bottom that forms in every market, instrument, and time frame available probably wouldn’t be all that effective (or even possible). Without the right context behind it, the pattern itself isn’t all that strong.
But if you only take the ones on daily charts in equities with favorable sector/market conditions and a strong, stock-specific catalyst – the odds of the pattern working increase. Without the right context, however, it’s probably best to pass on the trade.
This, by the way, is not a comprehensive list of trade data/information to track – but it’s a good starting point. Ultimately, you have to figure out for yourself what should be tracked based on your own specific trading style and overall approach.
Annotate Charts, Label Setups, and Archive Them For Future Study and Use:
A lot of people aren’t really interested in doing all this tracking and reviewing, but this is the work required to become elite.
I think Mike Bellafiore does a great job explaining how to properly track and review trades (with specific examples) in his two books: One Good Trade and The Playbook. So I highly recommend checking those out for insight into the world of professional trading.
But the idea behind doing it is simple. You want to internalize your best setups so that when they show up in real-time at the hard right edge of your charts – you’re completely prepared and ready to execute (like an NFL quarterback executing a touchdown pass).
Believe it or not – these guys even watch film of their trades, over-and-over again, reviewing them to see how they could’ve gotten better entries and exits, where they could’ve responsibly put on more size, and anything else they could potentially improve upon.
They’re closely monitoring the markets and their own process – relentlessly competing to get better every single day. So if you don’t give the market the respect it deserves by properly tracking, analyzing, and refining your trades, then you’re at a major disadvantage.
Success is the result of acquired experiences and skills – properly tracking/reviewing trades allows you to build up both of these.
The Wrap-Up – You Need to Be Able to Adapt Because Markets Are Open, Infinite Systems:
I talk a lot about following rules/plans and being structured/systematic, but I don’t want this to be confused with a lack of adaptation. No matter how systematic you are, you still have to be open-minded and flexible with what markets are telling you.
Markets simply don’t have the same closed, finite structure as other games. In chess, a second opponent can’t dump his pieces on the board and start attacking yours. In basketball, there aren’t fifty hoops to potentially score on – there are only two (one per team).
But markets don’t operate in this highly structured and regulated way. You never really know who you’re up against or who might jump off the sidelines at any given moment in time. The number of market participants to worry about is not fixed.
Market participants can come and go at their leisure with as much or as little capital as they want. Flows of money and market dynamics are in constant flux – and the game never ends. It can only be navigated with varying degrees of success over time.
Since there are no permanent truths that exist, you always have to be prepared to adapt. That’s what experience, skill, and being in-tune with the market does for you. Being entirely inflexible within a dynamic market is a recipe for disaster.
There will always be “something” to exploit from a probabilistic standpoint, but that something can change by the day/month/year.
Learn More in the Trading Success Framework Course
Written by Matt Thomas (@MattThomasTP)
- Day Trading vs. Gambling – Is Day Trading Gambling?
- What is Asymmetric Risk-Reward in Trading and Investing?
- Top 25 Quotes From One Good Trade By Mike Bellafiore
- Trading is a Skill – Knowledge Will Only Get You So Far
- How to Get Started Trading With the Right Expectations