I kinda agree with Josh's initial comments. I've given up trying to write down my setups too. This worried me for a while towards the end of last year. I use MP/VP for my trading and trying to write down a "setup" is kinda challenging since context plays a key role in whether I take a certain trade or not.
Let's pretend you teach a new person how to trade, how would you describe your strategy? If you use MP/VP you have levels you can refer to. You might say when price opens out of value and if i am within a certain distance from it, i'll look for responding activity, ie, a return of price to Yesterday static Value Area. My first target would be Y-VAH or Y-POC and try to keep a runner to Y-VAL etc. You can add some details for how to recognize responding activity vs initiating activity at the open. Try to describe a setup. I think MP provides a lot of flexibility when comes the time to form a plan.
Something else that may be helpful is to make a set-up sheet for each setup you have. On that sheet draw a conceptual map of what the trade looks like. The map is not from a chart. It's just a drawing of what the setup should look like. In addition to the map you can describe background conditions. For example, the market is trending lower, or, it is trending lower but at a key support level. Describe what has to happen for the trade to play out. Example, market opens below prior day VAL, rally's back to VAL and is rejected and a reversal bar forms. Go short. Target(s) are.... Stop is....
Agreed. I think you really need to have your setups documented. Perhaps the longer you've been trading the less this is applicable. But even if you never refer to the actual documentation on your setup, I think you still need to have gone through the process of committing to paper what your setup involves. Some of the conditions may be slightly abstract or intuitive, but never the less it can all be documented which in itself I think is a valuable process.
You donít trade the markets; you only trade your beliefs about the markets.
- Van K Tharp
I have 1 range setup and 1 breakout setup.
When I was mentoring, I typed up my exact setups with the conditions
as well as a picture of the chart. I had him print it out and tape it
next to his monitor. I told him to stop throwing money in the wind
and only trade when these conditions are met. This forces you have to have patience
but oddly enough, even with that, he still would 'gamble'. Some people just need
to see and/or get beat up enough until they see the light. It's very similar to alcohol
and drug addicts.
Strategy ≥ Money
The following 2 users say Thank You to Massive l for this post:
trendisyourfriend, a few things have evolved in my trading methodology in the two years since that series of posts. In the posts after the one you quoted, it seems I was a bit hung up on writing out actual "triggers" or "setups" -- and I still am, because I still do not think in terms of setups, though visually I am sure that I employ pattern recognition. Today I seem to be more concerned with what price I want to buy or sell, rather than a specific set of conditions that must be met in order for me to pull the trigger. While I may have some things which will strengthen my confidence in a trade--such as a positively correlating delta, or TICK, or some cue from another market--I watch the order book for a general read, but pretty much use context and value to determine actual trades.
I have seen the value in writing a plan before the open and executing that plan. The value for me has been that I can be more objective in the planning phase, and I am less prone to rash decisions. I know where we are trading, and I know what that means for me; there is rarely any question when the market opens what I am going to be doing. If it turns out that my premise was incorrect, then I see that as information I can use to modify things as necessary. This also helps me more objectively determine how synchronized I am with the market I'm trading--if my primary thesis is correct often, then I am in tune with the market and that gives me more confidence to execute without hesitation. If I don't have a plan of some kind and have a great day, then it is still frustrating for me because I have no objective way to measure my trading and that good performance is not really repeatable. It can feel kind of like "whew, came out on top today... but what about tomorrow?"
The following user says Thank You to josh for this post:
Context is very important. To wait for confirmation is normally very costly... I draw horizontal price levels on a 60min/240min chart. Sell or buy at these levels when I trade trend reversal. I buy/sell at VWAP when I follow trend as I know big boys are doing the same.
If you draw these horizontal price levels, you as well know if the instrument is in a range or trending...
"insanity is doing the same thing over and over again and expecting different results." - Albert Einstein