What is your Favorite Pizza?

One of the common misconceptions to new traders is the notion that there is a certain “Holy Grail” combination of settings and patterns that will make anyone successful. Just take a look at any of the dozens of trader websites with their hundreds of threads talking about trading strategies – one popular thread I show in my classes has over 1400 pages of commentary about just one trading technique!

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The first rule I’ll share is this

There are hundreds of threads on this one website! What does this tell me? That there are hundreds, if not thousands, of traders combing that site looking for the Holy Grail. Another definition of a trading Holy Grail is a SHORT CUT. There are no short cuts in trading. You have to get the “seat time” in front of the charts to get really good at this.

Now, just sitting there staring at charts isn’t enough. You have to put forth a bit of effort, keeping track of some things, and I’ve come up with a short list to get you started. In every class I’ve ever taught, someone asks “What indicators do you use on your charts? What time frames? What settings? What is the best…” etc, etc. My response is “What is your favorite pizza?” The response is usually a puzzled look. How do you come up with a favorite pizza? You try several different brands, topping combinations, crusts, sauces, cheeses, anything to figure out what you like the best. Just because I like a certain New York style pizza with pepperoni and mushrooms, doesn’t mean everyone will. You may hate it! But it works for me.

It is the same thing with trading. I know what I like, but that doesn’t mean you will like it as well. How can you figure out what you like in trading?

Keep track of the following:

1. The time frame chart you are trading. There are many students who come to class with a preconceived notion of a style of trading that they want to do. “I want to be a scalper because I heard they make the most money, so a 1-minute chart is for me!” What happens if you are bad at scalping? You may WANT to trade off a 1-minute chart, but if you aren’t proficient at it, stop doing it! Try a 1 hour or a 4 hour instead. You may be the best 1 hour chart trader in the world, but if you don’t try it and track your results, you will never know!

2. Currency pair. Most people are aware that stocks have their own personalities; did you know that currency pairs do, too? I know at least a couple of highly successful traders who won’t trade the USD/JPY pair because they consistently trade flat or lose money trading that pair. If you aren’t good at a pair, don’t trade it! Keep track of your best pairs and stick to them.

3. Time of day. This is especially true for short-term/intraday traders. If you wish to be in a trade for a few minutes to an hour or two (essentially a day trader), keep track of the time of day you are better at that style. There are times of the day that are definitely more volatile than others. Perhaps you are great at trading the London open, or maybe you are great at trading the relatively quieter afternoon times of 1-5pm EST. Keep doing what you are good at, and stop doing what you are bad at!

4. Patterns. You may have heard the commercial from an online broker where two traders are arguing about which pattern gives the clearer signal. If one pattern worked for everyone the same way, there would be no argument! From my own experience, I wasn’t “good” at recognizing head and shoulders patterns until a couple of years ago. But I’ve been trading since 1997 and in the brokerage business since 1992! Not everyone sees patterns the same way. If you have to turn your head, or squint, or say to yourself, “It kinda looks like a…” then you aren’t going to be good at trading the pattern in front of you. It has to be clear and obvious to you for it to work.

5. Setups. A setup is merely a combination of technical analysis indicators that tells you what to do. If buying at a demand zone with a Fast Stochastics oversold reading doesn’t work for you, please stop doing it.

Again, just because a trading technique works for one person, doesn’t mean it will work for you. The trading Holy Grail does exist. It’s called hard work. Keep track of what you are good at and what you are bad at, stop doing what you are bad at and do more of what you are good at.

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