The Path to Trading Success

The Path to Trading Success


One of the most commonly asked questions we hear is: what do I need to do to make my trading consistently profitable?  What is the secret?  Like most things worth doing in life, trading success does not come overnight.  There isn’t some magic formula that will guarantee you riches.  However, no matter what markets you trade, there are some basic steps to win at trading:

Step 1: Get a Good List

The first stop on the path to trading success is to create a good list of symbols to follow.  LIQUIDITY IS KING!  You want symbols that are actively traded by many people.

Stocks:  Don’t try to follow the entire market, because most stocks aren’t liquid.  Follow higher-capitalized stocks that have shares outstanding, or stocks that have a high volume of shares traded each day.  For example, the stocks that make up the Dow 30, S&P 500 or Nasdaq 100 would be good lists of stocks to follow.  If you trade stocks options, you must follow stocks that have options traded on them.

Day trading stocks requires a much smaller list of symbols than if you’re position trading using daily or weekly charts because there are so many more buy/sell opportunities appearing at a much faster rate. (i.e. in minutes rather than days or weeks).  An important thing to remember when a day trading is the best opportunities are found by doing your homework the night before.  By analyzing daily charts you can find several candidates for the next trading day.  In addition to the candidates you find from your end-of-day analysis, you may want to follow 50 to 100 symbols with good liquidity to day trade.

Also, be sure to watch what the overall market is doing by following the Dow 30 and the Nasdaq Composite and the S&P 500 indexes.  If the overall market is going up, you may want to have more Long Positions in your game plan than Short Positions (and vice versa if the market is going down).

For more help on determining the overall market direction each day as well as daily trading signals, go to www.signalwatch.com.

Futures:  Many futures traders try to specialize in one market, missing out on great opportunities in various markets.  For example, instead of just trading the S&P 500, follow a basket of markets including metals, gains and currencies to go along with the S&P.  By following a basket of markets, you won’t miss a big move in one market because you were tunnel-visioned on another market.  There is plenty of FREE information available from the exchanges, or you futures broker can help you with the different rules and characteristics of each market.

Step 2:  Generate Long & Short Signals

Once you have a list of symbols, you need a way to bring the best opportunities to the top of your list.  But what methodology consistently works?

Some folks get “toolbox” software and try writing their own trading systems to generate signals.  Others rely on “holy grail” trading systems they’ve leased or bought.  Frankly, neither of these approaches is very easy or rewarding.

OmniTrader automates the market analysis process and generates Long and Short signals for you.  Simply give OmniTrader a list of symbols to analyze, and it will:

  •  Retrieve updated market data.
  • Test up to 120 built-in systems on each symbol in your list.
  •  Generate consensus Long and Short signals using only the best performing trading systems from each symbol’s test period.
  • Create a list of these Long and Short signals for you to review.

OmniTrader does all of this analysis for you AUTOMATICALLY – you don’t even have to be at your computer! Analyze, click and trade.  That simple.

 Step3:  Confirm Long and Short Candidates

This is often the point in the “Path to Trading Success” where people get lost.  All too often they think the analysis is over and it’s time to place their trades.  WRONG!  You see, now that you’ve gone from hundreds or even thousands of possible trades to a manageable handful of candidates, it’s time to isolate the Best signal from the good signals.  You may be asking…

“Why can’t I just trade the signals my computer gives me without having to confirm anything?”

Reality Check:  the markets are very pervasive.   No computer program can call the market all the time.  Think about it… if such a piece of software existed, would the owner make it available to the public?  Of course not!  Computers can definitely help us zero in on good candidates, but it takes more work than just waiting for a computer to tell you when to buy and sell to be a successful trader.

Statistics & Clean Charts Help Filter Signals:  One way to filter signals is to tell OmniTrader to only show you signals that meet certain criteria.  For example, you can tell OmniTrader to only show you signals that have fired during the last 3 bars (or days), and have had a 70% or higher winning trades during the back test period.

Next, you want to look at the charts.  By looking for proven confirmation patterns, you can isolate the BEST signals to trade with just a glance at the chart.  OmniTrader automatically plots trend lines, support and resistance levels, pivot points, retracements and more on your charts for you.

Step 4:  Set Profit Targets and Loss Stops

Money Management is the last stop on our path to trading success – and perhaps the most important.  Before you enter a trade, you should know when you’re going to exit the trade.  There are many techniques for setting targets and stops, but one common strategy is Fibonacci Retracements.

Based on the work of an Italian mathematician named Fibonacci, many successful traders observed that when a trend is retraced, the retracement often stops at approximately 1/3, ½ or 2/3 of the original move, making the retracements a great tool for setting Profit Targets and Loss Stops.

Once you have your Profit Target (where you’ll get out when you win), place your trades.  When you get your order confirmation back from your broker, enter your official fill price in its built-in portfolio manager and OmniTrader will automatically track you positions for you.  If you Profit Target or Loss Stop is hit, exit the trade.


Of course this is just the beginning of the journey and there are many, many more methods, systems, strategies, etc. to mull through and understand.  But always keeping these simple steps in mind, will keep you on track to trading success.

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R.B. and Ed Downs