• Building Historical Analysis into Trading

  • building historical analysis-cover 30Much of the routine necessary to be successful at trading in the stock market is about learning and building on skills. Gaining a historical perspective is the best candidate for skills and learning. Before the stock market open consists of looking at what has made the recent market distinctive. Perhaps it’s an extreme indicator reading or an unusual pattern of price change. Whatever that distinctive element is, look back in market history to see what has characteristically occurred following that event. That, many times, provides a clue for the market’s or stocks overall direction during the coming day. Track volume flows trade by trade to see if large traders are indeed trading in the direction anticipated by my historical study. When those factors–historical tendency are in line that is when a trade should be executed.

    Gaining historical perspective and analyzing what has occurred is the measure of future success. A good trader is also good at technical analysis.

    Take learning opportunities when the market or a stock moves in the direction opposite to what you thought. Peel back the onion to find out why and build this into your trading routine. Successful traders evolve they are not born that way.

    It boils down to three elements:

    Strategy – aligning trades with historical odds

    Tactics – aligning trades following proven and established disciplines of knowing what the markets are telling you

    Execution – using a reading of technical analysis to obtain good prices on entry and exit and using position sizing and stops to ensure that I take equal, moderate risk on all trades.

    Breaking down performance that way allows you to more readily see where you have gone wrong in trading and what you are doing right. Hitting personal equity curve highs is amazing how much of this profitability has been determined by #3 (Execution).

    Your particular trading strategy (source of overall market edge), tactics (ways of exploiting that edge from day to day), and execution (position management) may be much different from mine, but breaking down your performance into these categories may help you see your strengths as a trader (so you can maximize them) and your weaknesses.

    In sports, coaches will review game tapes with players to work on strengths and weaknesses. Traders can do the same by grading themselves on strategy, tactics, and execution. It’s part of becoming an agent of continuous learning and ultimately a very successful market trader.