Do You Know a Great Trade When You See It?

04/09/2015 6:00 am EST

Focus: STRATEGIES

Rob Colville

Founder and CEO, The Lazy Trader

What if the solutions to your shortcomings as a trader were simple? How would you even know? Well, you can—and should—start by identifying the time and circumstances when you trade your best, says Rob Colville atTheLazyTrader.com.

What if “Play golf” or “Take the day off” were actually required by your trading strategy? And not just because it’s fun; but because it’s a tactic that’s proven to help you trade your best? Now that’s lifestyle trading.

I simply have to tell you about a story I heard this week about a trader who, for whatever reason, never made money trading on Wednesdays. He poured through data and statistics trying to find out why, but there was just no obvious cause. It remained an outright mystery for some time, in fact. So do you know what he did? Well, it’s easy; he hasn’t traded another Wednesday since and has been even better and more profitable for it.

Now this is a pretty unique scenario, but it does beg the question: Are there specific days, times, and/or scenarios when you trade your best; do you know when—and why—that is?

Determine When You Trade Your Best…

You’ll probably need to consult your trade journal for this exercise, and rightfully so, since that’s a big part of what it’s for. Use it to take a deeper look at your trading and see when your strategy most commonly produces wins (and losses) and if you can spot any trends and potential catalysts for that in the data.

Identify when you feel most calm and confident, when your strategy generates the most (and fewest) high-quality signals, and whether or not that coincides with the release of news and economic data.

Also pay particular attention to factors like:

  • Market Conditions: Do you trade your best in high- or low-volatility conditions; in trending or range-bound markets; and when using long or short set-ups?
  • Day of the Week: Do you trade your best early in the week, mid-week, or at the end; and specifically, is there a day(s) that produces your best (and worst) results? 
  • Time of Day: Do you trade your best in the first hour after the open, or maybe right after lunch, or even end of day, when you can simply, “Set it and forget it?”

This is all very telling information that can give you a deeper insight into when (and how) you trade your best, so look very closely.

Maybe you’re not as calm and focused in the morning as you think you are and should trade later or even end of day for better results. Maybe very specific set-ups and market conditions best suit your style and strategy and you should focus more on those and downplay or even eliminate less-productive ones. 

Or, like the trader in our earlier example, maybe a certain day of the week just “has your number,” and you either need to try to make adjustments in response to that, or, as he did, you could simply choose to stay on the sidelines instead.

…And Then Try to Find Out Why

Once armed with this information about when you trade your best, also consider what happens at those times when you don’t trade your best? Do you stray from your strategy, lack discipline or get distracted, or trade non-qualifying or sub-par set-ups? Or maybe your emotions and expectations get the better of you?

Regardless, you can’t fix problems unless you know when and why they occur, and this helpful exercise will get you half way there by taking care of the “when” part. You’ll know when you trade your best—and when you don’t—and can then either look to adapt your strategy or correct faulty methods and promote more consistency…but that’s not all you can do.

At least think about whether trading only when you know you trade your best is right for you. After all, if you trade part time or only in your spare time, do you really need to care about when that is? The trader in our example found an excellent solution just by eliminating the unprofitable period altogether and maybe you can reap more benefit simply by doing that as well. 

Conclusion

In an industry that’s famous (or maybe even infamous) for supercomputers, algorithms, and mysterious black box systems, it’s funny how a solution as simple as “Don’t Trade on Wednesdays” could make all the difference for a trader…but it did here.

So, what if the solutions to your own shortcomings as a trader were that simple too and how would you even know? Well, you can—and should—start by identifying the time and circumstances when you trade your best. From there, you’ll gain invaluable insight…and not just about the good times, either.

You’ll also isolate those times when you don’t trade your best and can then make a plan to adapt accordingly. Who knows, maybe the answer to everything that plagues you in your trading can be fixed by going to the beach or spending more quality time with your family. If only every problem in life were that easy.

By Rob Colville of TheLazyTrader.com

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