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TopstepTrader

Observing Your Market

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Observing Your Market

 

Gregg Killpack of Topsteptrader.com

 

Why is trading so difficult? It is because there is no trading strategy that works 100% of the time. Different strategies work better for different markets, and under different market conditions for the same market. Therefore, the first thing to consider in trading is to observe what the market is doing and respond with the proper strategy.

 

For example, it may be appropriate to have one strategy for a trending market, and another for a choppy market. Since most traders profit in trending markets, unless you have found a good strategy for a choppy, range-bound market, a good strategy for choppy markets may be not to trade and wait until the market starts to trend again.

 

The second thing to profitable trading is to develop confidence in your trading strategy. This is tough to do. We need to look at the strategy, determine if it appears to work well by seeing how it would have worked in the past, and then trade it on the simulator for a period of time to see if it is profitable. There are many excellent, highly profitable strategies that will have several losing trades in a row, so you can’t have a few losers in a row and conclude you have a losing strategy. You have to see the big picture and trade the same thing consistently to see if it really works or not.

 

We have been advised by the experienced traders at Topstep to trade only 1 or 2 markets at the most. Why is that? It is because trading 2 or fewer markets helps you to become intimately familiar with how the market moves, not to mention be able to follow in real time. This is critically important to match your trading parameters (entry points, stops, and targets) to match how your market moves in order to be profitable. The parameters that are profitable for one market can very drastically for times when it is choppy vs. trending or between different

markets.

 

Here is a list of things you should know about your market in order to create profitable strategies:

 

1. After the Open, how much time typically passes for the initial volatile period before your market starts to trend?

2. What is the typical distance of the intra-day moves for your market?

3. What is the average pull back?

4. How far is the average daily move?

5. When your market starts to trend fast, how big are the moves and the pullbacks? (Any

market that is having a larger move than normal will also typically have a larger than

normal pull back / counter-trend move.)

 

If you don’t know the answers to these questions, how can you create a strategy that best fits that markets movements? If you can’t answer these questions, it is time to start analyzing the charts.

 

You only need to become expert at one trading strategy on a single market, and know when to use it, to become a profitable trader and have a long career. I have heard of traders who have been trading one strategy on a single stock for 40 years and made a lot of money.

 

When you find that one winning strategy, fine tune it and then follow it religiously. Systems traders do this by programming. I think all discretionary traders who succeed do this subconsciously by remembering what works and what doesn’t.

 

Many Profitable Returns,

 

Trader Gregg

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