Friday, June 11, 2010

Baby Steps to Context

My good buddy Awais ( sent me an email this week containing a blog comment by an excellent trader, Ziad. Ziad, among other things quintupled his trading account in a year and banked six figures last year. And i've heard hes cleared tens of thousands in profits on a single day this year so its someone I would heed advice from. If you'd like to read it (and I suggest you do) check it out here.

The point of his comment was that most traders endlessly (and fruitlessly) hunt "setups" to trade. More importantly they hunt setups with no pause or consideration to the context within which those setups are applied. I think he rightly points out this inherent characteristic in most of us and our seeming inability to take a step back and recognize this. So i've decided to make a concerted effort to add more context into my setup. However, I need to apply that context in a way that suits me.

If you've been following my progress (or lack thereof) for any amount of time you'll know that I like a solid trade plan and a rule set for my setups. I'm not the type of trader that thrives on just clicking orders in to the market off of feel and read and managing the outcome. However, I recognize that this attribute has also been a detriment to my trading success in some instances. For now I want to compromise with Ziad's assertions and my own personality and meet somewhere in the middle. This means adding context, but in a way that I can quantify, even if in some basic and rudimentary way.

The one setup i've been working on is nothing more than a minor pullback in a major trend. That statement alone requires more context in the setup than i've ever traded with before. It means I need to identify a MAJOR TREND. Not just any wiggle, not a range bound market, not some oscillator extreme. I need a logical read on the market that identifies only a major, almost spastic trend to jump on. For now if that means using 1 moving average on my chart to help my eyes see not only momentum but the strength of that momentum (how far price is pulling away from that moving average or falling back towards) then that is a layer of context, albeit basic and rudimentary context, that I can use in my favor.

That small bit of context is also something I have never applied to any of my trades. A trade was a trade was a trade and it didn't matter where on the chart it occurred, I didn't even look at how defined a trend was, or how much strength there was in a trend. While i'm sure many (probably including Awais & Ziad) wouldn't see this measure as the true extent of Ziads post it remains a start.

Baby steps folks... baby steps.


Risk Control Master said...

Good point, and it's baby steps plus baby steps that will build a giant success in the road of trading. I think not many traders out there (at least from my reading) can do as detail review/analysis as you did, Keep it up.

Matt said...

Thank you sir! Nice to get a pat on the back every once in awhile!

Looks like your still trading up a storm on your blog. Good stuff!

Gump said...

The trend is a red herring.
You can quote me on that.

Gump said...

This opens you up to a lot of subjectivity. "Defined"? "Strength"? "Trend"? The definites are price and volume.

If you guys are so sold on pullbacks I wonder why Linda Bradford Rashke and her pullback Holy Grail trade is never mentioned. I mean she has it quantified for like 20 yrs! It boggles the mind. Why not just use her research and copy it?

Simon said...

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