I have a method that I use when creating a new trading style that I developed with a mentor awhile back. It has served me very well and I’ve used it no less than 3 times now. I actually just completed another round with my current strategy and it never ceases to amaze me how well our genius minds can interpolate patterns from visual images. I use the results and feedback from this method to design objective trading rules (for discretionary visual-based trading systems).
The problem is – it is kindof old-fashioned. In this last round, I searched and searched for a software that could possibly enhance this process, maybe make it more efficient. But alas… I could not find anything up to snuff and ended-up just going back to the old-fashioned way since I know it works.
Here is what I do now (and what I would love to explore doing “digitally”, if such a software organizer exists out there) –
First, you have to have a number of screenshots of trade setups. I like to collect both the setup and resultant screenshot, although you could get by with just the setup as long as you know what the result was. I organize these charts and put them all into a word processor document so that each trade is exactly 1 page. On that page, I have the setup chart the largest – entire width of the page. Below that there was more room, so I put smaller versions of the two resultant charts (target 1&2, or stop). I also label each page with a header like this “EURJPY – short – loss” and then highlight it green or red (that helps later when you’re looking at tens or hundreds of charts).
After all the charts are composed in my document, I then print them all out. (Somewhat-unfortunately for me, I prefer black-background charts, so I can’t inkjet them… have to get them color-printed at a copyshop) At this point I have one page for each complete trade setup. I’ll have one pile with a green header (winners) and another pile with red header (losers).
Here is where the fun part starts. In my recent study, I had to negotiate with my wife for “extra” trading time so I did it during 4 sessions of 30 minutes, right before bed and first thing in the morning. That was the easiest way to do it without much impact to her. But in retrospect, I’m thrilled with how this worked… studying charts right before sleep made my brain percolate more (I’m convinced), and then again first thing to start my day. 30 minutes was perfect for each stage. I’ve known for a long time that when I have a difficult problem to solve, if I just “sleep on it”, then frequently the next day my brain will have new ideas or answers waiting. This concept has proven invaluable in this process I describe below – much more effective to break up the analysis than do it all at once.
Anyway, what I do initially is find a BIG room with a lot of floor space. I place each chart on the floor one after another, until they are all laid-out. I make multiple rows, but being careful that I can physically move around and see each chart with ease. During this process I keep the losers in one area, and the winners in a separate area.
This process is all about grouping. It’s hard for me to explain what happens next, but your mind is in control at this point, and it will take over naturally. It is about pattern identification and logical groupings. You may not even know why two charts are in the same group without studying them intently, but your mind can spot these things very quickly.
In a number of passes, I will group and organize in a free-flow way, moving charts around the big room, always being careful to position them so they are readily visible for the next pass. For example, in my recent study, the very first thing I did was go through every chart to see if any of them could be labeled as “bad form”. I took all of those charts and just set them aside. I’m not interested in learning anything about trade setups that were done in bad form.
Then I look for similarities and patterns and group and re-group. I will look at the section of winners and ask myself: is there anything these all have in common? are there subgroups of successful trades? its ok to have multiple groups of winners.
Basically it’s a process of revision: you group / sort / eliminate until you are down to a barebones (as possible) set. In the end (for me) I usually have 1 set of winners and 1 set of losers. These trades ALL have the same characteristics and patterns. The reason there is a group of both winners and losers is because in real life not every trade will work. Also, hopefully at this stage, your number of charts in the winning/losing groups represent a risk:reward ratio that you could live with. In my case I take only 3:1 setups so a ratio of 50/50 was plenty acceptable to me. (Also keep in mind that this is only a “first draft” – if the strategy proves successful, you will undoubtedly be back for more tweaking later.)
From these two groups, you can write your objective trading rules. The rules you write should fit every single trade in both of these groups. From this step, you can begin actual trading. Once you have more trades under your belt, you can go back and continue re-grouping and re-processing to further enhance your trade rules. It’s pretty much a never-ending process.
… So I’m sure you can see how software would be helpful in this process. I’d like to find a software that can basically do what I’m describing here, without losing any of the value of being able to keep this a purely-visual exercise. For example, I don’t want my brain to have to waste electrons remembering which button to click to flip charts, which palettes to open, etc. I want it to be as free-flowing and natural as possible, just like paper charts on the ground.
I’m open to any suggestions here!
THANKS