4/24/2026 - The best questions are sometimes the ones that you discover. I like collecting market data and then observing and backtesting for historical relationships. I know that the past is far from a perfect predictor of the present, but I also know that if several different historical studies are pointing in the same direction, there's a worthwhile hypothesis to be entertained.
For example, when the market recently rocketed higher after considerable weakness, we got to a point where just about everything was rebounding. I track the number of stocks in the NYSE universe that give buy and sell signals on a variety of technical indicators. (See the Market Charts site for historical data). Very few stocks were displaying sell signals following the bounce, indicating the breadth of the move higher. When we look historically, the market may pause in the near term, but tends to go significantly higher in the weeks ahead.
Interestingly, it's the lack of weakness that predicts strength. When we collect historical data and ask the right questions, new patterns show up to guide our thinking and our trading.
=======================
4/23/2026 - Some of my best work with traders occurs when I sit in on team meetings and observe how productive those meetings are. What is a productive team meeting? It's one where team members question each other and gather new information. It's also one where team members challenge each other's views, add to those views, and offer related or different views. The best team meetings are highly active and interactive.
The less productive meetings are rote. Each person talks in turn, there is little dynamic interaction, and everyone goes away feeling like they've gotten an update, but not necessarily an insight.
Of course, traders trading on their own have no such teams. There is no one to challenge them, no one to stimulate them, and no one to hold them accountable for their plans. Having just one trading buddy can greatly broaden what you do and how you do it. The best trading psychology is a dynamic one, where we're stimulated, inspired, and challenged by those we respect. A great deal of the frustration traders experience (see the upcoming free webinar I'll be doing with Agnieszka Wood) is a function of their isolation and their inability to ask the right questions and get the right answers.
Teamwork makes the dream work.
=====================
4/22/2026 - This set of questions was inspired by an interaction with a trader a while back. Suppose you went to your physician and found out that you have an aggressive tumor and that the cancer was beginning to spread. Removal of the tumor and radiation treatment of the area where the cancer had spread would maximize your health going forward. Realistically, however, you can only expect to live another several years.
What do you want to do in those several years? What haven't you done during your life that you'd want to tackle in the time remaining? What role would trading play in your life over those next few years...or would it play a role at all? What would you want to do in terms of family activities and relationships?
A scenario such as the one above forces us to prioritize what we do and who we do it with. It especially prods us to identify the role of trading in our lives and how important it truly is to us. Time is finite for all of us. What is important is to live that time without regrets.
===================
4/21/2026 - Take a look at your daily, weekly, and monthly returns for the past year or two. Take a look at index returns. Have you been making money? Have you outperformed the index?
Calculate the number of winning and losing trades over that period. Have you been successful in finding opportunity? Have you been consistent in finding opportunity? Have there been market periods/environments in which you've found particular opportunity and in which you've failed to find opportunity?
Calculate the average size of your winning and losing trades. Have you been successful in letting winners run? Have you been successful in limiting the losses of losers? What has been your Sharpe ratio?
Calculate the running three-month correlations between your returns and overall index returns. Are you making money in unique ways, relatively uncorrelated with what the overall market is doing?
These are but a few of the ways a professional trading firm would evaluate you if they were to hire you or allocate you capital. Do you evaluate yourself with this kind of rigor? Would you invest in the trading of someone else who had your track record and your review process?
======================
4/20/2026 - Macro traders at hedge funds will look at news items, economic data, and central bank activities to identify what might become a trend in various markets. Day traders at prop firms will look at charts on different time frames, observe patterns of volume, and figure out what is setting up as a profitable trade. Good traders dig for information, and they assemble their observations into views that they can trade.
Review processes provide opportunities to ask different questions: What trades worked, why did they work, and what did I do to take advantage of the opportunity? What trades didn't work, what went wrong, and what can I learn from that?
The question I've found most helpful to add to the above is: What kind of market are we in? Are all stocks moving in one direction, or are sectors doing very different things? Have we moved from rotational activity to broadly trending activity? Are we seeing a thrust in breadth and how has that played out historically? Are correlations among the various sectors breaking down?
Good questions address how to trade the market. Great questions ask what kind of market we're in and how we're meant to adapt our trading to the evolving market regime.
Speed of adaptation is central to trading success.
====================
4/19/2026 - I can almost always recognize a promising trader or investment team when they ask unique questions and search for answers in new and different places. Creativity begins with originality of thought. We put information together in new ways; we seek out new information. We don't just look to improve what we're doing. Rather, we look to do new things. The best teams and traders are like the most successful businesses. They innovate.
Innovation starts by examining new data and old data in new ways. That's how we get to new and better questions.
The other day, I thought about analyzing stock market data in a new fashion. Instead of looking for patterns of strength, weakness, volatility, etc., I wondered about the times of day in which the broad market trades most predictably. In other words, imagine that different time periods are different markets. Then consider backtesting market patterns/setups for each time period. When do our trade ideas work best and worst? How could that inform how we think about (and size) our trades? Are there market patterns that play out at different times and over different amounts of time?
And what if the patterns play out over different volume regimes, not just time?
As artificial intelligence capabilities become more a part of the trading universe for individual traders, success will become a function of asking more and better questions and quickly implementing solutions.
Posts
