Finding New Trading Approaches

06/07/2011 10:30 am EST

Focus: STRATEGIES

Jackie Ann Patterson

Author, Truth About ETF Rotation

Traders are always looking to gain an edge, but searching for and testing new ideas can be a lengthy, difficult process. Jackie Ann Patterson has a few ideas designed to help.

Traders are always looking for new ideas to trade the markets, but where do you go find those, and how do you find new ways and new strategies to go approach the markets?

Our guest today is Jackie Ann Patterson; she’s going to talk to us about that. Jackie, how do you find new ideas if you’re searching around trying to find a new way to trade the market?

Well I think there’s a couple of different ways. One is to scan the literature and see what’s out there, look for things that people are doing that experts are talking about. That’s one way. 

I think the second way is to just take out the price chart and look at it and perhaps look at an indicator, see what’s happening with it, and see if you can draw any conclusions.

It’s important to always test those conclusions, because you might be looking at too small a sample size, but sometimes those things pan out and it really does turn into something that can give you an edge in the market. 

The third way, which has become more and more important to me over time, is interacting with other traders.  As I talk with other traders, whether it’s at an event like The Traders Expo, or just casually over the Web, or interacting with customers, I always learn something and I always get some good suggestions. 

People have good creative ideas and I’ve really been able to innovate and see some new ways to interact with the market using that.

What are some suggestions for someone new who is overwhelmed with all the choices, all the indicators, all the ideas that are out there? How do they know where to start?

You know, that’s a really good question. I think probably starting with something simple and starting with the price may be the best. 

To look for instructions and systems that have been tested and that have been more tried and true. Then to always keep their common sense at hand also; to really try and think through whether they understand what they’re seeing and whether it makes senses, and whether they’re seeing the market respond as told by the indicators.

I think a lot of traders when they’re new maybe think of this as such a long process. We have to try this, backtest it, see if it works, try another thing, backtest it; is there any way to speed the whole process up?

Well, you know, it does seem long at first, but then the short way of just putting the money in can really get expensive. I think that doing the diligence is important.
You can speed it up by learning from others; learning from others who have tested the strategies, trying to find out if people have a similar mindset and similar goals as you do. That can be a good way to get a leg up on the market.

Finally, what if I just want to buy a system that somebody else has backtested—just kind of buy that experience from somebody else. Is that an option?

Yeah, I think it is. Certainly, people do it. One of the important things is to have the confidence in the system. I think what you have to be able to get with it is the confidence. If buying it—and the person is comfortable with the expert that they’re buying it from—then that can work out great. 

Sometimes actually spending the money for it can be a sense of commitment and can get a person to stick with a system. 

Sometimes if we just come together with a plan and we think “Yeah, I’ll go and do this.” If I have no commitment to it, I might not stick to it. But if I put some money into it, I’ve got some skin in the game. 

The flip side of that is if I put some money in it and I have that skin in the game, I might want it to work and I might stick with it longer than is really necessary. 

I think it’s very important to keep an open mind and a critical eye…and a skeptical mind as well.

Related Articles on STRATEGIES