Saturday, February 07, 2009

Cross Talk: How to Trade

I want to call attention to an excellent series of posts from Trader X. The first post is a reflection on simplicity and the value of using proper tools in trading. Mastering a limited number of setups while honing one's execution and risk management skills is far more promising than looking for ever more reasons to put trades on. Many traders, the author notes, chase success by running from one approach to another, never mastering any. "If you pick something and stick to it, you get good at it. Once you get good at it - once you perfect it, THEN you can add something else to your arsenal," Trader X explains.

In this post, Trader X outlines his rules and setups. Notice that some of the things he does are similar to what has been posted to this blog, such as waiting for markets to show their structure before trading and relying on support/resistance from trading ranges and pre-planned price levels as potential price targets. Other facets of his trading differ from what has been presented here: the reliance on Fibonacci levels, the use of 10-minute charts, and the emphasis upon opening range in setups.

Ultimately, we are all trading the same thing: supply and demand, as they evolve during the day. There are different tools for capturing supply and demand, and there are different languages for describing the use of those tools. The important challenge is to make yourself familiar with the various tools and languages, see how they're used by different traders, and then synthesize your observations into an approach that will crystallize into your own trading style.

It is not so important whether you use tool A or B or one or another language for capturing the use of those tools. I strongly suspect that I could talk about VWAPs and NYSE TICK distributions and pivot levels and Trader X could talk about Fib levels and opening ranges and candlesticks and we'd be saying much the same thing. What is crucial to your development as a trader, Trader X emphasizes, is to settle on the tools and methods that make sense to you and then devote yourself to their mastery. Blogs like his provide the tools; it's up to traders to structure the learning process to build proficiency.