How to build your own trading method Part1 | stockbee


How to build your own trading method Part1

If you want to make money trading then you have to develop an edge. You have to find things that work in market and build your trading methods around

That kind of process requires good understanding of how markets operate and what works and why. If you base your methods on structural tendency of the market then you are likely to be profitable.

What makes some of this process difficult is that you have to figure out everything for yourself. There are many resources you can tap but ultimately the responsibility of making it work is your own.  

You have to figure out how markets work on different time frames and why. You have to figure out how different types of stocks behave over their lifetime. You have to figure out how IPO behave. You have to figure out how value and growth stocks behave. You have to figure out how momentum stocks behave. You have to figure out what factors drive stock returns.

You need to figure out how overall market direction affects the growth, value, and momentum stocks and how to adjust your style.

You have to figure out how to manage risk. You need to figure out how to determine safe periods for your strategy and how to avoid unsafe periods.You have to figure out how to control per trade risk as well as overall risk so that your draw downs remain very low and you can quickly recover from any setbacks.

You have to design your own method, devise your own rules and have enough confidence to trust your own method.

Unless you start your career in a big bracket investment bank or in a hedge fund, this is the reality of trading success. All individual traders who are profitable over the years have done this and each one has taken different route to get there and has spent different time frame to arrive at profitability.

Moses is not going to give you 10 commandments on how to trade, perfectly wrapped in a gift box. 

The ability to learn trading on your own is going to determine your success. Some people persist at it for years and then they find success. Some try it for few days or months and that is the end of it.

Even if you find a ready made profitable strategy you may not find success with it till you customize it for your own needs and beliefs and personality.

So much of trading is about individualization of methods to your own unique way of thinking and style. There are no standard methods. There are approaches. If you are smart, you would be able to build a method after studying some of the well known public domain approaches.

One of the big problem for many people is that they are waiting for Moses to give them detailed rules, guidelines and every single nuances. I have bad news for them. It is unlikely to happen.

God is too busy handling other big problems in the world than to offer you get rich scheme.

In series of posts we will look at how you can find approaches that work and build your own method around it and make profit.

1 comment:

Jerry Katz said...

Thank you, I agree of course. For me, it is like this: Two people are sitting next to each other on a beach watching the same waves, the same tide, feeling the same wind, seeing the same stuff washed onto the shore. They are witnessing the same thing. Yet each one is more tuned into certain facets than the other. Each has expectations and makes predictions based on somewhat different perceptions and understandings. One person would have a hard time teaching the other how to formulate expectations and how to make predictions, or how to behave under certain circumstances. Each individual has to sit on that beach, absorb what is going on, and make their own decisions. It does take time. Howver, advice can be given to the newcomer, such as "cut your losses short."