Setup selection involves purposeful sacrifice. | stockbee

4/25/2014

Setup selection involves purposeful sacrifice.



There is a diner next to my house, if you go there you will find a menu that runs 10 pages.

They have all kinds of choices available.

Guess what, most food their sucks.

Because in order to cater to every taste they make all kinds of food from Italian to American to Greek to southern cajun to you name it. How can they be good at so many things.

Don't focus on too many setups . Do few things extremely well.

If you see most successful investors or traders they trade one time frame and one or 2 setus well.

Warren Buffett does value investing, why doesn't he do day trading, or momentum trading or growth investing or high frequency trading.

Seykota does trend trading, why doesn't he do other styles.

Minervini does growth and momentum and within that two or three setups, why doesn't he do other things...

Similarly if you talk to very successful traders  they do few things well.

Purposeful sacrifice is first step you need to do and narrow your focus to few things....


Wait for your setup to show up instead of constantly changing your method

Define your setup in great detail.

Do all the thinking when you decide to trade a setup.

Convince yourself that you can make money using this setup logic.

Study thousands or ten thousand past examples before trading it. Get every detail about the setup etched in your mind.

Effort involved is significant in this but is one time. After that wait for the setup to show up and pounce.

As against that what do you see here day in and day out.

Brownian motion.

Someone says Bollinger band or keltner Channel , everyone runs for them.

Someone says NFLX is position trade everyone runs for it.

Someone says buy mean reversion everyone runs in that direction.

Someone buys ODMAX in 401k everyone runs to buy it without thinking.

Someone says rich get rich by buying beaten down stocks, everyone runs for it

Someone says pivot point again mad scramble to get scan for it.

Someone says John carter indicator, then everyone goes crazy for it.

In the process you are just flirting from one idea to another one setup to another, without getting in to depth of any one thing.

Monday to Friday if you rotate through 5 different setup ideas you will end up confused and frustrated.

You will never develop expertise on a setup with that approach. Setup selection involves purposeful sacrifice.

Lot of effort is spent in chasing mirage instead of mastering a setup.

Learn from this very good observation by Ed Seykota on setup

The lizard ... just hangs around on the rock ... and waits and waits and waits ... for his pattern to show up ... and when a bug comes along, he makes his move, right from the gut, without thinking about it.

Moral

When trader becomes that automatic, then he, too, can hang around on a rock and catch a lot of bugs.

If your setup definition is Stockbee momentum burst , you wait for setup like GOL to show up and pounce.

If your setup definition for 401k is Stockbee Lemonade strategy for 401k,  you wait for mutual fund to show up in your TI42 rank and pounce.

If your setup definition is anticipation then everyday you look systematically for that setup and pounce when you get god setup.

If your setup definition is Stockbee Episodic Pivots , you wait for it to show up and then back up the truck and buy....

If your setup selection is right you will have less of psychological issues.

Clarify and re clarify your setup to a level where the setup and trader becomes one.

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