Trading Lessons I Learned the Hard Way, Part 9

08/13/2012 8:00 am EST


Ron Wagner

Principal Partner,

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.

Find the previous article here. Start at the beginning here.

In the last couple of parts of my journey, I spoke about having a universe of stocks to consistently scan for ideas and about creating a watch list. I also spoke about having an “A” list and a “B” list.

What I found to make the biggest difference in my trading was how much room something could move in between support and resistance without interruption. I studied this concept over thousands of my own trades over the years, and eventually wrote significant material on the subject.

This is one of the many elements that helped take my trading to a much higher level. When I scan each day for trading candidates, I usually have no shortage of possibilities. The quality of the selections is the next most important part, and the candidates can be sorted with various filters that I will discuss in some of the next parts of my journey.

The single most important element was to select candidates that have fallen deeply (the abyss), or that have moved very steeply, and catch them on the turns at a properly selected entry based on patterns that I have found reliable.

This alone, however, was not enough. The quality of a move up or down, before I took a trade, needed to be evaluated properly. It is this analysis, that I can now do in seconds, that has made such a large impact in my trading.

I call the area between support and resistance, which has the best probabilities of producing a good result, a “Tradable Void.” Far too many elements exist about this for me to explain quickly, as this part of my development came from years of study and backtesting my results. Needless to say, this made a huge difference in my degree of accuracy.

The “Tradable Void” did not have to come from only a steep move up or down, but could also be produced from normal pullbacks and retracements. However, the quality of the “Tradable Void” was significantly important when choosing the best candidates to potentially trade.

Using this strategy that I perfected over time, my gains during trending markets became larger. In sloppy or range-bound markets, I found this strategy to be imperative to produce consistent results while maintaining the high degree of accuracy that I was developing.

We can each only watch so much at one time. I found, by developing a keen eye to choose the best candidates, watching those which had the best elements always made the most sense. My best trading days were not about watching more candidates, but rather sticking with the few that had the highest probabilities of success based on my newly found strict criteria.

Over the past many years, I have suggested the following to many others: “What if you could only choose five stocks to watch each day? Would you choose much more carefully?” This exercise alone, if you know what to look for, can markedly affect your results.

Lessons learned:

  1. Choose your trading candidates wisely!
  2. A great looking chart on one time frame may not look as good on another!
  3. Watch only what meets a strict set of criteria to trade!
  4. Remove anything not meeting up to your standards from your watch list!

Next issue, I will talk about another element that changed the way I looked at taking trades forever.

Ron Wagner can be found at Revolutionary Trading.

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