The Golden Triangle of Trading

LESSON
The Golden Triangle Of Trading Success

A while back I was trying to figure out what the key features of a successful trader were. That's when I developed the principle of “The Golden Triangle”. Think of it as a three-layer pyramid, with each layer playing a key part in your trading adventure. We'll look at these layers: Trading Psychology, Data, and Execution. In my experience, if you master each layer of the pyramid then you have a real shot at success. 

Layer 1: Trading Psychology - The Foundation

At the bottom of our Golden Triangle is Trading Psychology. This is all about how you think and feel when you're trading. It's super important because it guides how you react to ups and downs in the market. If you can keep a cool head and stay disciplined, you're off to a great start. This layer is your mental toolkit for the journey ahead in trading.

Layer 2: Data - The Core

Sitting on top of the first layer is Data. This is the part where you gather all the important information you need to make smart trading decisions. This could be backtesting data, data about your trades on a demo account, and even your trades daily as you trade live. Understanding and using this data well can help you spot great opportunities and avoid mistakes.

Layer 3: Execution - The Apex

And now, we reach the top layer: Execution. This is where you actually do the trading. It's about taking all that good thinking and data and putting it into action. Here, you'll make your trades, decide when to buy or sell, and handle everything in real-time. This is the moment where your plans and strategies come to life.

TL;DR

"The Golden Triangle" is like your personal guide to trading. Each part is connected and helps the others. You need a strong mind (Psychology), good info (Data), and the ability to make it happen (Execution). By understanding and working on each part of this triangle, you can become a better, smarter trader.

Remember, becoming great at trading takes time. Keep learning and growing in each part of the Golden Triangle, and you'll be on your way to success! 

LESSON
Finding Your Edge In Trading

I'm sure you've all had a family member who thinks trading is just like gambling and that you're better off at the casino. But the truth is, without data, they're actually right.

Your goal is to gather as much trading data as possible and find a small advantage in the market to profit on. This advantage is called a Trading Edge, which is a small factor that helps you win more often.

As you just read, finding your edge (data) is the second layer of my “Golden Triangle of Trading Success”

It doesn't have to be complicated or huge. Just like a casino, which makes money by having a small advantage over many transactions, your edge can be small but still profitable.

You MUST Backtest

To find your edge, you can use a technique called backtesting. Backtesting involves simulating your trading strategy using historical data to see how it would have performed in the past.

This helps you identify the strengths and weaknesses of your strategy, optimize it, and understand the risks involved.

Backtesting is an important tool for traders to make informed decisions about their strategy. When determining your edge, it's best to focus on something consistent and quantifiable.

Price action trading, although popular, can be difficult to master because it relies on interpreting patterns that may not always look the same and are often very subjective. (Thats why I recommend doing a lot of demo trading to gather data for this kind of strategy)

On the other hand, mechanical trading is highly quantifiable and consistent because it involves creating rules based on indicators. By testing these rules, you can create an algorithm that gives you an edge.

TL;DR

Finding an Edge is key, doing this can be done through backtesting or through demo trading. In the end you need to find data and make informated decisions.

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STOIC QUOTE OF THE DAY

This quote highlights the importance of having a clear purpose or goal in life. It suggests that without a clear direction or objective, external circumstances, no matter how favorable, cannot bring about success or fulfillment. This aligns with the Stoic emphasis on purposeful living and self-direction.