A Path to Winning

• Posted by Derek
• on October 29th, 2012

“Every battle is won or lost before it is ever fought.” Sun Tzu

I’m not going to write a review of Stocktoberfest…it was awesome on so many levels, wonderfully described by Brian Lund and Eli Radke already. What draws me to such an event is the opportunity to be surrounded by freaks like me who use every market day as an opportunity to improve themselves.

Having carved my own way to view markets, it takes a lot to inspire even the slightest tweak in my routine. At this point, I primarily crave 3 things…a) simplicity, b) efficiency, and c) objectivity. Faster ways to better execute my principles is why I read, and in return why I write. People sometimes share the simplest insights that I can adopt in my routine, and hopefully every now and then I can do the same for someone else.

After spending a prior StockTwits outing being introduced to the guts of Brian Shannon’s Alphascanner, I know the value of studying another trader’s process. His tool for identifying a) multiple timeframe alignment, and b) the earliness vs. lateness of each stage’s development, opened new lines of thought in the way I organize data and filter opportunities.

This time, I was introduced to a whole new approach to pattern recognition. The gentleman you know as Dynamic Hedge busted out his laptop at the bar, and shared the product that must have occupied at least 1000 hours of his life. It was a truly intuitive tool, able to visually display market outcomes surrounding just about any technical or fundamental event you can imagine. We often read market studies presented as “Out of the last 31 times A occurred, the market was higher X% of the time with an average gain of Y% and average drawdown of Z%”. What this software displayed was the actual paths traveled. Anyone who trades knows the destination is only part of our outcome; if we’re not prepared for the path we’re likely to stumble at the first obstacle.

The value in scanning for our favorite patterns is huge, meeting all 3 criteria that I said I seek. We understand the emotions that create the pattern’s development, and have the experience to know the structure that precedes the biggest moves. But the real value is in the identification of obstacles, both in planning for their arrival and knowing when to jump ship because the path is evolving contrary to our planning.

There is a highly important point to consider when using valuable tools like these. The user who believes they can buy one of these products and convert themselves to profitable traders is sorely mistaken. Alongside the excitement with which these guys share their process, it’s easy to see their concern that a trader lacking a comprehensive plan will misapply the value of these tools. Without the foundations of relevant timeframe and appropriate position sizing, even the best strategies are doomed for failure.

The Sun Tzu quote is both true and false for traders. Winning even 1/2 of our market battles can offer superior results if we choose high reward/low risk opportunities. We have no way of knowing which of those outcomes is next, only how we can expect to react when tested. Over time, I have become more attached to my process and less attached to outcomes, a trend I only see continuing. That means I was rendered nearly useless when dropping to laptop mode away from the office, at best collecting my data. But I have no doubt I came home with more trading buddies and greater insight on executing a plan…winning, right?

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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