Trading Lesson of the Week

Check back weekly for another free trading lesson:

How to Be a Better Trader

  • Stockscores’ Market Minutes Video – Plan the Trade, Trade the Plan
  • Stockscores Trader Training – How to Be a Better Trader
  • Stock Features of the Week – Abnormal Breaks

 

Stockscores Market Minutes – Plan the Trade, Trade the Plan

All traders should approach their trading with a plan for what to do in the different situations that the market may give them. This week, I discuss this, my regular weekly market analysis and the trade of the week on VXX.

Click here to watch on the Stockscores Youtube Channel

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Trader Training – How To Be a Better Trader

I created a new video this week which shows how the system I use for finding my day trades works. I am an algorithmic trader, which means I use logic-based rules to pick the stocks that I will buy or short. I do not use my own judgment when trading, I save the thinking for when I am developing my strategy rules.

You can watch the video on Youtube by clicking here.

The development of my rules is based on data that I collect each day. I have computerized tools which take in the trading data for every stock that I monitor and identifies all of the entry signals and subsequent performance. In this video, I show that data as well as the performance of the strategy since the start of February.

I then compare what I actually do to what I should have done if I was perfect in my execution. I never expect to do as well as the computerized results. There is slippage on getting the trade orders filled, commissions and human error that can all lower my actual performance relative to the ideal. Even though my computer model alerts me instantly when there is a trade that meets my rules, I may still miss it, especially at the open of the trading day when there are a lot of trades to be made. Sometimes this can help as I may miss a trade that ends up being a loser.

One area where collecting trading data is particularly helpful is when I feel like I missed out. Today was a good example because my buy signals suffered a small loss overall today. However, if I had changed one rule, they would have been very profitable today (-4RR vs +38RR where RR is reward for risk. If I risk $100 per trade and lose 4RR, I have lost $400. If I make 38, I have made $3800).

Since changing one rule made a big difference today, it is easy to think that I should make that change going forward. However, I did analysis on how changing that rule would have affected the overall profitability of my strategy since Feb 1 and it cut the average profit per trade down more than 50% overall.

This shows that today was an anomaly and that I should not change my strategy rules. Until I have a large data set that shows a change in my rules produces more profit, I will stick with the rules as they are.

Each week, I go through a process to optimize my trading rules based on the large data set that I have accumulated. I make tweaks to my rules to do what works the best.

I also compare my actual performance to what I should have done if I was perfect. I look for areas where I fall short and try to understand what the cause of the short fall is so I can modify my process and trading plan to be better. This is part of the never-ending process to be a better trader. Data, while time consuming to collect, is extremely valuable toward that goal.

Be sure to watch the video, it will help make this approach make more sense. Click here to view.

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