Thursday, December 01, 2016

Developing Your Trading Playbook

Here's one you can take to the bank:  

The most successful traders can talk in detail about the patterns that they perceive in markets and how they have traded those patterns.  The patterns make sense to them and represent some manner in which markets are "offsides" and thus offer a favorable reward relative to risk.  

The least successful traders talk about catching moves in markets and are not focused on particular patterns or setups.  They let market movement define opportunity, rather than allow their definition of opportunity guide their involvement in the market.

In other words, the best traders, to use Mike Bellafiore's phrase, develop a playbook just like any football or basketball team.  The plays they practice are ones that make use of their strengths and that exploit weaknesses in the opponent.  The playbook defines opportunity set.

As a trading coach for developing traders, I can readily identify the traders on the right track.  The ones who are progressing talk about their playbook trades and how well they are exploiting their opportunity set.  They are getting better and better at running their plays and, every so often, they develop new plays as they see new patterns and fresh opportunity.  The ones who aren't progressing talk about their feelings, how they missed the last move, whether the market will go up or down, etc.  

What is your playbook:  the patterns that you see setting up and that make particular sense to you?  How well are you recognizing those patterns in real time and running your plays?  How well are you exploiting those patterns once you get into the plays?  What factors help you make the most of your plays?  Which interfere with pattern recognition and acting on your areas of opportunity?

Before you ever get good at trading, you'll become good with specific trades.  Grade yourself on how well you ran *your* plays.  Get better and better with your playbook and gradually add to it.  If your trading journal doesn't reflect your playbook, is it really going to help you play the game better?

Further Reading:  Training Yourself in Pattern Recognition