The "Secret" Ingredient to Trading Success

[eudamonia]

I'm going to post a response based on a PM I received today about wanting to know how I trade.

So for those that are curious here is the "secret" ingredient:

My breakthrough was when I got focused on market context as opposed to individual setups. Reading the key support and resistance levels from prior day high/lows, understanding market profile and reading market volume provide my context. Before each session I decide we are in one of the following 3 markets: a) Consolidation, b) trending, c) cycling. Even if I can just eliminate 1 context from the future trading session that is useful information.

Based on the probable market conditions for the trading session I determine which setup(s) to employ. I use 3 basic setups: a) breakouts, b) pull-backs in a trend, and c) reversals at extremes. I use simple indicators to help quantify these conditions but everything I do is based on PRICE. I use the indicators the way a jet pilot does - they don't define the airspace, they just help me evaluate it. Would you really trust a pilot who only blindly used his instrument panel and never looked out of the airplane? Neither would I.

I suspect you might wonder if I use/have used the setups advocated here at Kreslik. The answer is yes. Under the right market conditions, the Buy Zone (for breakouts), the Mighty One momo bars (for pullbacks), and the Rat (for reversals) are just as good (or bad) as any other type of setup for their type.

However, my ability to read the market (just as a good pilot evaluates the air space) is the key defining ability that separates the good from the bad. The reason most beginning traders spin their wheels is that they are looking for setups and aren't interested in learning how to assess the market in context.

In truth, there is no secret ingredient. Just observation and action based on experience.

[TheRumpledOne]

You trust the pilot at night when it is dark and you trust the pilot when flying through clouds/fog - in both instances the pilot can't SEE and must rely on the instruments. What does a jet fighter pilot do at night when they land on an aircraft carrier when the landing lights are off so the enemy won't see their position? One must master the use of the instruments BEFORE they start flying.

Here's a good read:

http://www.nobrainertrades.com/2010/12/ ... nions.html


And PEOPLE - PMs are NOT for discussing trading, indicators, etc... they are for PERSONAL MESSAGES!!

PLEASE POST YOUR TRADING AND INDICATOR QUESTIONS IN THE APPROPRIATE FORUM THREAD - Thank you for your cooperation.

[eudamonia]

Yes that is a good point Avery. It is indeed important to understand your indicators (instrument panel). However, we don't let computers fly solo (at least not the important parts like take off and landing) without human assistance for a good reason. Indicators/instruments can be fooled (http://scienceray.com/technology/transp ... tot-tubes/), which is why it is important that traders/pilots are present to make sure things stay on course. Remember YOU are the most important part of your trading system and the indicators are there to help you make better decisions (not make decisions for you).

[TheRumpledOne]

I agree to a point. The worst thing you can do is OVERRIDE your indicators when trading.