One of the hardest stressors traders seem to put on themselves is thinking they have to have a trade setup every single day, every single moment. This is heightened by the fact that there is indeed a trade setup every single day, every single moment. There is always an opportunity, but that doesn’t mean every opportunity is right for every individual. And thank goodness for that, imagine how stressful it would be if we felt we had to take every setup, even the ones we don’t understand, don’t know how to trade or don’t have the mental or monetary bandwidth to deal with.
The market involves trillions of dollars, and millions of participants. Our job as a trader is not to try and play every market perfectly, our job is to identify what conditions help us make more money, and which conditions we don’t understand enough yet to bother with.
Look back at your last few months of trading. In which environments did you excel? Which ones did you fail to realize a market shift? Do you trade better fading the extremes of balance days (or balance weeks), do you buy/sell and hold better during trends? Do you prefer to take fewer more impactful trades, or happier taking a lot of smaller trades?
Let’s think of the kinds of markets we see:
- Grinding bullish markets with little volatility, but a consistent trend.
- Grinding bearish markets with little volatility and consistent trend.
- Sideways markets with no overall direction, but plenty of trading within a channel.
- Volatile markets with big ranges on the day and plenty of intraday volatility in both directions.
- Volatile markets with little intraday back and forth, but wider ranges for back and forth over several days.
Currently, the overall market is volatile on the daily and weekly time frame, and we are certainly seeing outsized moves, but there is very little structure intraday, and that can make for wild swings. As you read that list, which markets stood out as ones you like to trade, or even better, have a strategy for trading. What indicators do you use to help you figure out the type of market we are in on any given day or week?
Once you determine your overall trading strategy, you then have to implement it into the environment that best suits it. That could mean that sometimes there simply aren’t trade setups that meet your A+ criteria for a trade. For some that means they don’t trade for several weeks at a time, but when their conditions are met, they can trade more aggressively.
Oftentimes the issue is that we are trying to react no matter what the market gives us, when we should be reacting when the market gives us what is our highest probability setup, and learning/adjusting when the setups are not suited to our style of trading. Our job is to know on a personal level, when that is. It’s not going to be the same for each person, one person’s trash is another treasure after all. But we have to start with some structure around what we can set up for more successfully than not, so that we have a determined set of rules to play by, and enough information on the track record of our strategy to have confidence in our setups.