As the old adage goes: patience is a virtue. In trading, this couldn’t reign more true. Those with patience, as well as a systemized approach to trading, succeed. In today’s blog post, we will look at how you can systemize data that will allow you to make quantitative-based trading decisions. We will also go over breakouts, trigger prices, signaling, and filtering. If these terms sound foreign, don’t worry; by the end of the post, you will know what they mean and how you can apply them to your trade strategy.
As a trader, having chart data that is conditioned to analyze data and markets to give you trading outcomes is essential. And you don’t need to spend thousands of dollars to acquire softwares. All you need is Microsoft Excel and organizational skills. With Excel, you can analyze market correlations, fundamental trends, and intraday swings. But before we get into how you can optimize your strategy, there are a few key terms to understand.
What is “filtering” and how will it help me?
In trading, filtering refers to criteria that narrows down the number of possible options/strategies out of thousands of securities. At its core, filtering is a time-saving mechanism in which traders select trades from a pre-tailored pool of candidates. The term “filter” is a general term; the specific filter or method depends on the individual’s short-term trading strategy. For example, a technical analyst would be interested in factors related to filtering the price history, such as where, in relation to its 200-day average, a security is trading. Traders can apply any filter they want to narrow down their search for trades. Even investors who are keen in fundamental analysis use filtering; they may use factors and numbers related to a company’s balance sheet to filter out certain companies that do not reach a certain current ratio, for example.
Not only does filtering save time, but it increases patience and consistency. When you know what you aren’t looking for, it highlights the data that you are looking for. This focus keeps your strategy on the right path and prevents you from making impulsive, emotionally-driven decisions.
How can I use a “trade trigger” to maximize my trades?
A trade trigger is any event in which, when a criteria is met, an automated securities transaction is initiated without any additional input from the trader. Usually the criteria is a desired market condition, such as a certain price of Gold or Silver (this is merely an example, the market condition can be dozens of other things). When a trigger price is reached, you can set a software to automatically execute a trade. There are two direct benefits of this: the removal of emotional input, and saving decision-making. Because of this, you can automate your entry and exit strategy. Another part of triggers that are important to understand is that often multiple trades are made consecutively, but you don’t make each trade yourself each time (this is the automation). In essence, given a certain contingency, the first order executes, which results in the second-order being executed, etc. Here’s a full example of how trade triggers can be helpful:
Suppose a trader wants to make a covered call. He places a limit order of 100 shares of a stock. Only if the trade executes, then will the software sell a call option against the purchased stock. The second order is contingent on the first one. So if the first order is executed, then the second one is as well immediately, without the trader even opening his laptop.
One drawback of using trade triggers is that if you use them too many times in a day, you can forget about positions and contingencies you entered more than one or two days ago; the execution of a one-day-old (which can be a lot of time in day trading) trade strategy could already be outdated and lead to losses.
Overall, trade triggers and narrowing down are two technical skills that will allow you to save time, not be emotionally invested, and optimize your trade strategy. By staying patient, relying on your trade strategy, and using the data and technical analysis to guide your trade strategies, a consistent trader will profit immensely. Filter to eliminate “fluff” (unimportant information) and then, every so often, use a trade trigger based on the necessary contingencies.