Monday, December 10, 2018

What Can Change Your Trading "A Trading System" Or "A Trading Framework"?

Some traders swear by their trading system, others say you need to take in the big picture, aka the trading framework. Who is right? Are the system traders who are focused on their system outputs better off? or Are those who have a reliable trading framework going to come out on the top in the end? Read on to find out who prevailed...

Who am I?

I am Dean and I am a trader for the last 13 years. I have tried everything under the sun in the field of technical analysis. And I have made almost all the mistakes one can make the whole trading. The whole point of sharing my experience is I don't want you to reinvent the wheel (go through the painful experience), just use mine!

Let's dive into the Systems Approach to Trading

Lets first examine the systems approach, following are some of the characteristics of a trading system (this not an exhaustive list by any means)...

  • They have a fixed set of rules and conditions for entries and exits (some times different set of rules for different situations).
  • They are generally very strict in enforcing these rules and conditions.
  • You have to take all the signals so that the positive expectancy of the system plays out over a period of time.
  • Any kind of discretion is frowned upon and very little is left in a traders control.
These characteristics create a few problems...
  • Sometimes the losing streaks make even the most trusting trader doubt his system.
  • markets change all the time and effectiveness of the system oscillates along with the changing market conditions.
  • Sometimes the deep-rooted human desire to be in control makes traders second guess the system. A human is a human, not a robot, after all...
  • Controlling emotions (necessary for our proper functioning) is not always possible, just too many variables at play here.
So even though there are some merits to the systems trading, for a discretionary, retails, individual traders, with limited capital, someone like you and me, it may not be the best approach...

The Framework Approach To Trading (LCTR Framework)

Now let us examine the other side, the trading framework approach. I have a confession to make this is my favourite way of doing business in the markets...

Let's first go through an infographic...

See how cool the infographic is, isn't it? Don't hesitate to pin it to your Pinterest Board os share it with your friends...

Ok, so what this infographic tells us is that a framework, like one details here, LCTR Framework, takes in the bigger picture. Instead of telling the trader when to enter or exit, it helps a trader understand the markets better.

Let me describe my LCTR Framework, one that has evolved over my trading career spanning 13 years (that's 13 years of making mistakes and learning from them.

So LCTR stands for...

  • L - Logic
  • C - Context
  • T - Timing
  • R - Risk
Let's go through each one of them...

Logic

Market logic attempts to answer the questions "why the market does what it does?". To that end, I use the following three core philosophies to guide me in my trading. The good news is you can use it too...

Wyckoff Market Cycles and Schematics [WMCS] (Wyckoff is omnipresent in all trading and technical analysis techniques) followed by Auction market Theory [AMT] (deceptively simple but extremely effective) and lastly the Life Cycle MNodel [LCM] (nothing gives you a deeper insight into how smart money operates).

Now each one of these is a huge topic in itself. Unfortunately, I can't go into much details in this post, hence I have designed the LCTR Framework course... It goes into greater details on all these topics (and it is available at a whopping discount of 90% for a limited time, that's just INR999 or USD16).

Context

This is where one really awesome tool comes in, viz Market Profile. I use market profile charts to apply the above-mentioned core philosophies to the markets I trade.

You need something that will convert your enhanced market understanding (after studying the 3 core philosophies above) into actionable information, aka trading decisions.

There is no better tool that market profile which can help you find some really juicy trades in the instrument of your choice.

Since the day I started understanding how to read a market profile chart, my trading has changed forever, and I have never looked at the markets the same way again. You can learn all about Market Profile in my detailed course on the subject... (do check it out when you make time)...

Timing

Once you are able to find great trade opportunities (using market profile charts), you will need a timing tool that will help you minimize the initial risk in your trades. lower the risk you start with, better will be your trading longevity. That's all there is to becoming a consistently profitable trader, be in the game long enough...

I personally use Volume spread Analysis [VSA] and Order Flow Analysis [OFA] (both based on Wyckoff, AMT and LCM) to time my trade entries and exits. While OFA is a pure timing tool for me VSA provides you with both context and timing. many successful traders are using VSA as their whole and sole trading system...

Once again you can dive into much greater details in my individual courses on the topics of VSA and OFA. Check out VSA Course here and OFA Course here...

Risk

Last but not least is the risk part. This is the most misunderstood one by the majority of the traders. They look at the risk in some tangible terms like a stop loss or  % of capital at risk or som,e such metric, there are many BTW...

I have a different take on risk. I look at it in terms of the risk of holding a long or short position at any given point in time. if the risk of being long in the markets is high, it pays to look for exit opportunities to your long positions and also look for shorting opportunities.

this topic may not be very easy to grasp in the first attempt, but I am certain if you look at the risk of holding your positions (being flat is a valid position too), you will become less and less anxious about finding your trade entries and exits.

Parting Thoughts

So there is it, this was a quick review of the LCTR framework. I know I can't go in more details here, but you can always subscribe to my mini course on LCTR Framework for a measly sum of INR999 of USd16. That is a whopping 90% off for a limited time...

So don't forget to check out the details here...

Always bringing you the best...
Dean

PS: Share this post with your friends and on your social networks so the message spreads to as many committed traders like you. If you like it I am sure your friends and colleagues would too, so let them know about this, and of course, it will help me out as well...

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