Setups as against individual trades | stockbee

10/08/2013

Setups as against individual trades




If you want to be profitable trader understand the concept of setups. Once you understand that you will begin your journey to trading expertise building.

Setup is a set of conditions used to find, enter and exit a trade. A setup encompasses a whole process of trading a specific trading method. If you know a traders setup you should be able to replicate his or her trade on your own. On this site the constant focus is on setups and processes.

Once you understand the concept of setup and comprehend it you will look for setups rather than individual trades.

With proliferation of social media sites like Twitter, Facebook, Stocktwits and blogs there is constant sharing of trades. A trade is of no important if you do not know the setup logic, scan and steps behind it. If you know the setup you know a replicable way to find that kind of trade.

Setups allow you to become an expert. Successful trading is about developing a significant expertise in a very narrowly defined setups. Most traders trade only 1 to 3 setups.

In absence of setups one thinks of random trades or acts on emotions....

Setup selection is very important for new traders and those just starting out. Your task should be to hunt for a setup. Understand it in depth. Break it down in terms of logic and process flow and then recreate it. Try it out for few months and then make changes to suit your personality.

All successful traders trade a setup or a bunch of setups. They have skill specific to their setup. Successful traders have developed cumulative expertise on trading a very niche setup.

Some have very well defined setups, some have fuzzy and discretionary setups. Some can describe their setup clearly. Some can never articulate their setup even though they can trade it. Some purposefully make their setup sound exotic by using made up terms.

The problem for beginner trader is that as a beginner you will not understand the importance of a setup. Because there is no manual or book which tells you that the key to trading is to find setup.

What is involved in developing a setup is you start with broad concept or start with setup that has worked for someone else and then make it work for you. For that you have to go through a versioning process. You refine and refine a setup till it works. This is a iterative process.

The task for novice trader is to go from their current stage to a level where they have a setup which works for them and suits them perfectly. You will have immense confidence once you reach that destination. Once you can make a setup work, then it is easier to make other setups work or develop other setups.

I constantly look for setups and study other peoples setups. You will see most successful traders do the same.

Whenever I visit a blog or see people talking about a trade I always look at what is this persons setup. If I find a good setup I study it. I may not use it, but it gives you ideas.

When reading a trading book look for setups. If you go through hundreds of books on trading you will often see variation of a basic setup again and again.

If you see the Jesse Stine book his setup ideas which he developed on his own are very similar to the Episodic Pivots setup. And his setup of buying extremely beaten down sector or stock is very similar to setup idea discussed in Richard Love book.

If you see day traders, almost all of them trade same kind of basic setups. They might claim , that no one trades their setup , and might have invented vocabulary for their setup, but look around and you will see all day traders do same kind of setups.

Similarly most swing and position traders trade few basic setup ideas that have been around for years.

So if you are a trader looking to progress your trading further think setups and not individual trades...

Once you have a setup your problem of cognitive load will decrease because you will be doing a very narrowly focused task. Once you find your own setup you will be able to shut out environmental noise.

Any expertise is task specific. So defining a specific task to become an expert at is very critical. The first step in becoming a good trader is to arrive at a tradable setup. And then become an expert in trading that particular setup. It is a very microscopic skill.

1 comment:

FX Crusader. said...

Insider Buy Superstocks by Jesse is a good book ? Any good trade ideas ?