In our last email we showed you how Context plays a major role in predicting your trade’s outcome. No trading method or system can exist by itself in a vacuum. Once you know how to use Context your trading results will show dramatic improvement.
Markets are like people. They have personalities. Wouldn’t you like know how your ‘trading personality’ interacts with what you are trading? Let’s steal a page from the professionals’ manual and learn how to precisely calibrate your style of trading to the actual market you trade.
Assuming you have an actual trading edge that produces a meaningful percentage of winners, preferably an actual mechanical trading system, you will want to do what professionals do when they test a new trading method.
Professionals know that it is crucial to maintain accurate records of all their trading variables. Two major variables they consider when day trading are:
- What chart setting (time frame) the trade was entered on
- What exit strategy was used for that trade
This process of calibration is meant to uncover the relationship between a Boolean logic mechanical system and the human who is choosing whether or not to actually take the trade, as well as which chart’s entry set up and which exit strategy to use once the trade has begun.
Amateur traders typically jump from trade to trade without a record of their progress. This is why the vast majority of amateurs complain they aren’t getting the results they were promised when they bought a trading method or actual mechanical system.
You must capture the statistics of every single trade that you take in a statistically viable sample of at least 30 sim trades to get meaningful results. Before this calibration process, called Benchmarking, you should have been journaling each and every trade you took.
Professionals agree that journaling enables them to learn why a trade succeeded or failed. Without journaling the outcome of each trade and why it worked or didn’t, a trader is doomed to repeat their mistakes.
When you begin your Benchmarking process you should already have been consistently journaling your trades for some time. This enables you to have a body of knowledge about what worked or did not work in various trade scenarios. This is where the previous blog post regarding Context comes in.
If you had been reliably journaling those pre-Benchmark trades and noticed how various forms of Context influenced the outcome of each trade (e..g, support/resistance, price overextension, etc.) by the time you begin your formal Benchmarking you will be well aware of trading scenarios that did not work in the past.
Unlike your pre-Benchmarking sim trades where you took every single trade that you got a legitimate signal for (even if you thought it might turn into a loser), when you begin Benchmarking you will then call upon your previous experience about what worked or did not work and be highly selective about what trade signals you will accept and enter.
At the end of your statistically viable sample of at least 30 trades you will turn to your spreadsheet to discover not just the results you got but how you got them.
When TradeSafe students complete their Benchmarking series of trades they will be completely calibrated to the TradeSafe System they had been using. This is because traders are not machines, but in fact are heavily influenced by their subconscious impulses.
We have all heard about revenge trading or analysis paralysis. Those are just two examples of how typical traders react when they have had losing trades. This can be dramatically reduced and even eliminated by creating a reliable structure that connects their trading method or system with their own personality.
A typical TradeSafe student will generate approximately $3000-$5000 net profits after their series of 30 or more Benchmarked trades (using, as an example, the US indexes and trading four contracts at a time).
Every single graduate from the TradeSafe Course has achieved a winning percentage of trades that equaled or exceeded at least 87% (covering the past 2 ½ years that we have kept the statistics).
It is not enough to build an authentic track record using Benchmarking before you begin trading your live account. You must know exactly what were the optimum trading choices you made that produced those results.
In the TradeSafe System we allow trade setups to occur on multiple charts (typically a one minute or either of two tick-based charts). This offers the trader ample trading opportunities on a daily basis. However, not every trader produces equivalent results from entering trades on a given chart.
Benchmarking reveals the choices a trader made that produced the best possible percentage of winners. For one trader, they may have gotten the best results on the one-minute chart. A different trader may have gotten superior results from one of the tick-based charts. The spreadsheet tracks this information and will point the trader towards consistent results since numbers do not lie.
Entries are only half of the trading equation. How you manage and exit your trade matters just as much and even more. In the TradeSafe System, we do not have a one-size-fits-all approach to managing and exiting trades. We offer three distinct automated exit strategies.
Once again, the spreadsheet will reveal what each individual trader succeeded best with: which of the three exit strategies produced the highest percentage of winners.
Once you have determined the highest percentage of winners based on the chart you chose for entering your trade as well as the exit strategy you chose for exiting your trade, you are now calibrated or Benchmarked to your System.
Because this approach takes into account the human side of trading and combines it with the mechanical side, you have the best of both worlds. Do not make the mistake of assuming that you can buy the stairway to heaven by just buying some software and thinking it will behave like an ATM machine that spits out money.
Because you are the trader making those decisions about whether or not to even take the trade, as well as choosing which variables your system allows, you need a reliable feedback mechanism that can track your true performance.
This is why Benchmarking is so critical to achieving consistent trading success. It is why professionals incorporate it as a matter of routine whenever they try out some new methodology or even start trading a new market.
Remember, markets have personalities. They are not all the same – some trend better than others. Others tend to congest a lot. Benchmarking reveals what it takes for you to get the best results trading your favorite markets with your own methodology or system. AND, it also factors in whether you’re an aggressive trader or a conservative trader.
In our next installment we will examine the last frontier in trading – trading psychology or discipline.
To learn more about TradeSafe, please click HERE
To watch a Replay of a recent online workshop about the TradeSafe Mechanical System, please click HERE