10 Step framework
A 10 step framework I would use if I had to restart my trading journey from 0 with the knowledge I acquired as a trading millionaire over the last decade in the trading business.
The tumultuous passage
It took me years to reach profitability. At first I was wandering about, randomly clicking buttons, ending up the day crying in the corner… ‘God, oh why is it so hard?’
Truth is, there was no logic to what I was doing and I was lost in a sea of my own emotions. Impulses were guiding me and the destination was the utter destruction of my account.
Upon years of chasing a distant dream, I started to study the brightest in the field. The thought was easy, if I could figure out what the best do, I could learn by implementing and religiously following what they had done, especially in their beginning phase.
It took about a year from there and I was trending up. Within a short period I reached my first $1 million and shortly after my first $10 million.
“For the things we have to learn before we can do them, we learn by doing them.”
― Aristotle
The Framework
Over the past decade, I had to pleasure to meet dozens of successful traders, ranging from 7 figures all the way to 10 figures. Upon talking to them I internalized their processes. This post is supposed to lay out these learnings in a concise way, a path forward to help guide you through the long night and hopefully to the long awaited sunrise that is profitability and outperformance.
10 Steps
Networking, pod and unscrupulous copying
Surround yourself with two groups of people:
People slightly better than you
People you aspire to be.
People you aspire to be give you a path, a direction and goal to reach. People slightly better than you give you actionable steps to follow to reach the next stage. As you grow, new partners will lead you to the next stage until you reach the final stages. Ask questions, get on mic, formulate themes and debate, especially about their routines.
List all assets they trade and find parallels
Find out what they trade and why. If they won’t tell you directly, create a document listing all their trades and figure out the parallels.
Do all assets have news on the day of the trade, do they all run up into the trade, do they all have macro news, do they have a volume explosion..?
The point here is successful traders are automation machines, they have repeatable setups, routines and more.
Repeatability = Edge
Your biggest edge being around these successful individuals is that they will keep on doing the same things, trade the same setups and more. If successful, their repeated processes and action will leaves trails which you can use to build edges.
Formulate a scanner
A scanner allows you to only display the occurrences/trades with a positive skew.
Building a scanner allows you to be precise. It gets rid of the random noise and allows you to focus on where an edge is. If you trade random stocks in random spots, you will be left with random results.
Understand a trade usually starts from a daily pattern, the execution happens on an intraday basis. You are trading the daily expectation through the intraday structure. I am yet to find a consistent random trader. Either they blow up or take 50%+ drawdowns.
Structure within chaos
Your goal is not to get rid of the chaos as that is the nature of markets. Your goal is to create structure within that chaos to avoid the unneeded chaos that steers you towards random action. If you don’t see what will steer you into chaos, you will not be tempted.
Based on scanner build or get a historical list using coding or a service like spikeet
If you can code, you can use data providers such as polygon, Bloomberg, Interactive brokers and more to retrieve the data based on your parameters.
Alternatively, you can use a service such as spikeet to do the same, they will create you a list of tickers based on your parameters, including charts.
A scanning software like Tradeideas will let you pull the data for the last 90 days which is often a good start to start your thesis.
I personally went through the pain of asking hundreds of people on twitter if they had stock lists, went through my own archives and inputted it all into excel where I also formulated my odds. Tim Grittani was the one for me that opened the doors to a data based approach.
Acquiring a scanning platform is an absolute must and was one of the best things I ever did for myself.
Build an excel or pandas based database and formulate odds.
Once you have the list you will be able to run a historical backtest. You need to understand your expectation on each trade in order to formulate your expectancy. A backtest allows you to see where to enter, add, cut and exit a trade.
The best theoretical entry is the highest point during a day, the best exit is the low, but is it repeatable and does the data show you it is repeatable?
These are questions that this process should answer. This is the stage where you start to understand the edge and thus the positive skew that should appear if you use it. You can use that data running through all instances to create a theoretical profit chart…
Example: If the high for the day is set after a 10% move in 85% of cases and I enter based on a 10% move up and exit on a 20% below the open with a stop at +15% or the close for that day, would I make make consistent gains?
Paper trade to learn execution
This step will be based on the data gathered through watching your pod from step 1 as well as the data gathered in step 5.
I understand the pushback I will get on this step, but let me explain why paper trading is a good first step. Once you start live trading, emotions will come flooding in like you never thought possible. This stage is about understanding the mechanics.
“Plan your work and work your plan.”
― Napoleon Hill
You need to understand how you want to execute the edge you found before trading randomly while filled by emotions. The approach to live trading should be made when all variables have been covered and all you have to do is wait for your pitch.
Prep, execute, review, debate with pod.
The work from step 6 will give you constant feedback. It will tell you what works, what does not and thus will tell you what you need to improve.
Rather than wondering like the trader that trades all but manages to capitalize on nothing by not knowing what he does not know, I want you to create structure to activate and maximize introspection.
Prep:
Before the open, have your scanner and your odds from step 5 up on your screen.
Write down how and why you want to trade this setup. How you want to execute, which size you want to use and why. Also include how you feel that day, your readiness is important as trading is extremely demanding on the body and mind.
Execution:
Simply execute based on the plan you laid out in the premarket prep.
Review:
Did you stick to your plan(execution), what worked, what did not, which mistakes did you make, how did you feel, how can you improve and do you have new findings about the strategy as well as new ideas?
Debate with pod:
Use your group of like-minded individuals to discuss your mistakes, your thoughts and how you can improve. Every trader makes mistakes and you can easily be defensive and lie to yourself about situations. Your pod is there to be blunt, to slap you in the face when needed. They are there to give you an objective opinion about your performance and your ideas.
The next day before prep, internalize the lessons you have learned that prior day. Every day you will be growing, improving and stronger.
Trading is a long term game, you make slow but compounding progress until the growth changes $10 days into $100… $1,000…$10,000…$100,000. I went through the same grind and so did all traders I talk to each day in my pod.
Switch live after 3 months and give yourself 3 refunding/reloads
Once you had time to figure out the style of execution you want to use and through the work you put in during your routine, it is time to jump into the big pool.
This is where tears flood the office, anger breaks keyboards, euphoria gives you a high and you want to give up.
Be harsh on yourself but in a loving manner, like a strict father. This is one of the most complicated professions in the world, you will learn a lot about yourself. You will without a doubt change because of it.
Keep on going through the routine process and grow your account, your network, your deals and bankroll.
Refining: Tape, sizing up, pyramiding
You have reached profitability, You understand your edge, you have a strong network that supports you and keeps you in check.
Your routine keeps you fresh and aware of your next steps, you consistently update your data and trade accordingly.
You essentially became a business, you trade to make money through a positive skew, not to fulfil your emotional desires. Time will compound your gains.
At this stage your job is to keep your energy levels up. You are paid to think and execute your edge.
Fine tuning becomes your mission, you try and maximize your profit by understanding other market participants better via the tape (lvl2 and Time and Sales), you size up and you work on maximizing winners through pyramiding.
Weekly, Monthly and Yearly reviews.
Weekends are powerful as they give you an objective period to reflect upon your performance. During the week, active trading creates subjectivity and your thoughts often do not reflect the exact reality.
On weekends, do a weekly recap and read through your notes including new ideas for patterns. If any idea seems good enough you go through the process above again and implement the new strategy slowly but surely sizing up as it continues to prove a positive edge.
Trading is about constant introspection and improvement. The whole framework is about one thing: Constant growth through a proven process and edge.
Your goal is to learn and become slightly better every day.
Amazing, thanks for all the information📝
Another great article! I recommend Polygon for Python programmers, very intuitive, great data and cheap. Been using it for a few months and built useful tools. People can even try for free with yfinance library or openBB 👍 can’t succeed without data.