The "Secret" Ingredient to Trading Success
Posted: Wed Dec 08, 2010 7:50 pm
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.
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.