Wednesday, September 21, 2016

Trading With Your Signature Style

One of the things I've found among successful traders is that they develop ways of looking at markets that:  a) are original and b) that make great sense to them.  The originality of their perspectives helps them see what others don't.  The familiarity of the perspectives helps them align their cognitive strengths (how they best process information) with their decision making.  Very often this means that successful traders trade with a signature style, not a generic one.  Working with mentors and researching markets and market patterns are very helpful in developing the raw materials for one's signature style.

Above is a chart of the ES futures from August 22nd to the present (blue line).  Each data point represents 500 price changes in the contract; these are event bars, not time-based bars.  The red line is what I call the Power Measure.  It's a running correlation of price change and volatility.  In short, the Power Measure tells you when volatility is fueling directional moves:  when that fuel is waxing and waning.  That makes sense from my perspective, because I ideally want to participate in directional moves in which volatility is rising in the direction of my trade.

When you develop your own metrics and ways of looking at markets, the patterns that repeat themselves become ones that are intimately familiar to you.  It's because they are *your* patterns that you are able to follow them, test them, and ultimately trust them.  I have never met a successful trader who traded someone else's style, just as I've never seen a successful painter who copied others.  We see markets best when we cultivate our own vision.

Further Reading:  Calculating Power Measure