One of the most common traps traders can fall into — myself included — is spotting a pattern, riding it a few times, and convincing yourself you’ve cracked the code. But…is it an edge, or was it lucky?
When talking about patterns, it usually means any repeated sequence of price movement that appears to predict what comes next. Candlestick formations, support and resistance levels, breakout signals. These are all patterns traders look for every single day.
Mine is a little different. I was noticing repeated behaviour around certain timings of the day about candle direction. So I wanted to look further into it to see if I was right or wrong.
When looking for an edge I think it’s worth being aware that we can have confirmation bias – when we look for something to backup our theory rather than treating the information as neutral and working from there.
What I was spotting wasn’t always consistent with other stock, but was there more often than it just being chance. So I needed a way to prove this.
Amongst the numerous research I’ve come across in day trading (and sports trading) is to log your trades. I was a bit sceptical to this for quite a while as I couldn’t see what I would gain rather than have a historical record of what I’ve done. I didn’t really need that as all I want to know or see, is that at the end of the month I’m in profit.
There are platforms out there that allow you to back test a theory, but they can have limitations. They might be expensive, or the data doesn’t go far enough back, or they’re not simple to use. I wanted to rely on my own information.
But I’ve not got very far so far by doing that, so I thought I’d take the plunge and try recording my trades from my trading platform. I’ve currently got a 30 day trial with my Prop Firm and I import my trades into TraderVue so I can see if it is something I will use. I have no doubt as to the benefit, seeing what works, when it works, should I have left the trades running etc. But if I’m not realistically going to use it, then what’s the point?
I am however recording all of the data that I want to record for back testing into my Excel spreadsheet. This for me I think is a game changer. No longer do I have a hunch that something might work, I can start to prove it over time. Excel does the hardwork by formulating probabilities that dynamically update meaning as stats change, so does the likelihood of a trade being successful.
Now this isn’t a tipping site or financial advice so I won’t say what my exact method is, but the logic behind it is sound. It’s no secret that after a certain period of time in the market, volume can dry up and reversals can take effect. Traders looking to take their profits or stop losses get hit meaning the stock tends to revert in the other direction. This is what I’m looking to exploit. And Excel can help me do that…I hope!.
You can read more about this and how I use AI here.
Thanks for reading…DT
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