Tuesday, February 13, 2007

Replaying the Trading Day: A Best Practice in Trading

Note: Today's Best Practice post is from reader Bonnie Lee Hill, who has shared with me a number of insights and perspectives into what makes a trader successful. Below is Bonnie's post; I follow it with a few observations of my own. Her premise is that you can improve your learning of markets by increasing your exposure to trading patterns.

Since trading is a performance art, a trader must practice his craft. A trader needs time to trade, research, test his ideas, update his trading journal, etc. There are not enough hours in the day (unless you are a FOREX trader who never sleeps :-) I daytrade the QQQQ, and require a lot of screen time. I have found a way to become more efficient. I can replay any day's trading action. The replay can occur at any desired speed -- normal, 2X, 10X, etc. This allows me to increase my amount of "screen time".

I can use my replay time in many different ways. I can test a new idea on randomly selected days. In this situation, yesterday's market action can not be used to help me trade "today". I can study a particular situation in the market. For instance, I can replay all the FOMC days in one study session. This helps me to see the "pattern" in that volatile day. I can replay all the Options Expiration Fridays as a group. I also have a group of Congestion Days. These are the days in which a trader may try to force a trade. These days are a very good test of a new idea or indicator.I have a group of Runaway Days. These are the days in which the market can leave the trader behind. Again, these days are great for testing a new idea or indicator.

I also practice the same trading day at multiple speeds. There are times at which the market may seem too fast for me to handle. I can replay trading days at faster speeds. Let's assume I replayed several trading days at the 10X speed. The next actual trading day seems to move very slowly. The market didn't "slow down", I "speeded up" :-)

A playback (or simulation) feature should be included in a good charting package. I am using the Playback feature of Ensign Software. The website maintains a collection of Playback files which can be downloaded by the user. The user can also generate a Playback file for anything he wishes to study.

If you are interested in studying this technique, here are a few links:

Playback Instructions

Video which describes how to use the Playback files

An article on Playback

How to open the Demo chart

Bonnie Lee Hill

From Brett: This is truly an excellent feature and aid to learning. What makes this a best practice in my view is the archiving of particular market days, such as FOMC days or breakout days. This enables traders to concentrate their practice and achieve months' worth of experience is a single learning session. The ability to speed up the market's action is also a very useful tool for sharpening rapid perception and judgment. It reminds me of basketball drills in which we used to take 25-30 foot jump shots, one after another. That made the standard 20 foot 3-point shot look like a layup! For the active trader, speed of mental processing is a core skill. By practicing at different speeds, a trader can actively work on cultivating that speed. Thanks, Bonnie, for the excellent ideas! I welcome comments to this post if traders have ideas of their own to add.