What are trading's big levers?

And what about all the executions to see trades through?

A disproportionate impact on results comes from "trading prep", the time and skills allocated to identifying uncrowded trades that provide the largest payouts.

However, your plan (in my case, a particular hypothesis) requires executing many different "playbook" trades, and this is where traders come unstuck.

Each trading day should follow the process shown in the diagram below.

 
20210425.jpg
 

Many developing traders jump straight to "Playbook", and unfortunately, in doing so, their playbook trades are hit and miss (mostly miss) because executing a playbook trade occurs in a vacuum. Playbook success is dependent on being in sync with the underlying hypothesis because a skilled trader can develop highly probable hypotheses.

To summarise in terms of $ outcomes:

Consistent profitability (large payouts + grinding-it-out wins) = hypothesis drives playbook execution.

Consistent net loser = executing playbook trades in the absence of an underlying hypothesis.

Using trading from Friday, April 23rd here is half of the trades executed that day.

These trades relate to a detailed hypothesis developed from observations and themes observed over the last two weeks.

Despite just one thesis for Friday (trading days can consist of several), I executed five plays from an extensive playbook, selection based on numerous data inputs such as:

  • market pace

  • relative dominance of "inside" participation

  • depth of market activity

  • positioning of key players at particular levels and the impact this has on price direction

  • the balance or imbalances of long and short inventory

  • etc

See the full list of essential trading skills

The historical charts highlight where the executions occurred, they don't illuminate the conditions of the play. 

 
2021-04-25_14-43-25.jpg
 
 
 
02021-04-25_14-58-11.jpg
 
 

Note 1:  The big levers at work here are the non-trading preparation time and knowing which playbook trade to implement based on how the market is acting now.

Note 2:  The more experience you gain investigating and hypothesising how to approach the trading session, assuming you review your work, the more it continues to improve. These improvements have a significant impact on your bottom line.  

Note 3:  A widespread issue in trading is giving back all profits. The reasons include lacking the skills to differentiate various market conditions and lacking the skills to apply the appropriate playbook trade.  Developing these necessary skills is either several years in the making or months if taking a deliberate learning approach under the guidance of a trusted mentor. 


Adam Fiske