Friday Feature: How the S.T.E.P. System helped me build my rules
July 3, 2020
Last update: August 2021
Trading is exciting! It’s an adrenaline rush at times when you see those big gains, and a huge buzz kill when you get those losing streaks, but nevertheless, exciting. Especially when you’re new.
I’ve been trading for just over two years now. I still wouldn’t call myself a “veteran” trader, but I definitely don’t qualify as a new trader anymore. I’ve been in the game long enough to know what it takes to be successful, but short enough to remember exactly how it felt placing my first trade, which was actually a condor on Boeing.
Before placing this trade, I had done the analysis, structured the trade, analyzed all possible outcomes, and went to submit my order in. My adrenaline rushed. I went back and double-checked all my work, stared at the chart, and searched for any reason why it was a bad trade. Even looking back at this trade two years later, I still think it was a solid trade. I may have structured it slightly differently now based on the knowledge I’ve acquired over the last two years, but overall it was still solid. I clicked the button. My heart raced. My software jingled at me confirming my order was filled. I stared at this new position that represented my money going to work.
Now let’s fast forward to the end of this trade. Long story short, I lost… and to make matters worse, I lost both legs of this condor. I’m almost too embarrassed to admit that. But why? Simple answer is, well, that I got scared. I didn’t want for my first trade to be a loser so much, that I inevitably made it a loser. Boeing had a decent move up and threatened my bear calls so I pulled them off. Then it made an even bigger move back down, threatened my bull puts, and I pulled them off. The price had never broke major support or resistance but my fear of losing is what actually made me lose what should have been a winning trade.
It’s moments like those that you look back on and it makes you want to smack yourself upside the head for being so arrogant. Why would you place a trade if you didn’t have a management plan? Unfortunately, it took many more ignorant mistakes like this to learn what I’ve come to know now.
Trading has to be treated like a business.
Within any business, whether you own a fast-food chain, fix cars, or sell clothes, you have to have a business structure. A design for how your business should run. It gives a clear outline that says who should do what, when, where, why, and how. Within a trading business structure, you have a portfolio that should have specific amounts of money allocated to certain systems. Different systems could include directional swing trading, day trading, futures scalping, forex trading, and cashflow. Whether you use one system or 10, you should know how much money to allocate to each.
I particularly like directional trading on a day and swing-style timeframe. I’ve probably spent more time analyzing different directional trade management techniques than I have with any other trading strategy. This made me realize directional trading was where I gravitated to and enjoyed. So I focused MONTHS of time and research backtesting and forward testing different methods of trade management.
During this time of testing, Tackle released the S.T.E.P. System. I used the information that was in the S.T.E.P. System to refine my trading plan to fit my personality. Now there is no more trading on a whim. I know exactly when I get into a position and when I get out. If I lose, I make a note of the setup and if I did anything wrong and if I would have done anything differently.
Your business needs to have a structure like this or it will fail or break even. You have to be able to confidently build a trade and execute it. If you can’t, then I would stick to paper trading until you’ve proven profitable or at least until you know that system inside and out. The markets are not going anywhere so don’t try to rush gains.
When you are new, you are taught many different styles of trading from directional to cashflow to volatility strategies. Focus on one at a time. Pick one and master it and move onto the next. Run that system until you can do it with your eyes closed so that you don’t get overwhelmed by trying to run multiple systems that you barely understand yet. And just because you have been taught a system and you know the rules and how to trade it, doesn’t mean you understand it yet. Only experience can help you understand it.
I’m going to refer you to a previous blog article I wrote about that topic at the end of this article.
Using something like the S.T.E.P. System will give you the knowledge you need to create rules that fit you, but it is up to you to test those rules and trade them until you understand exactly what makes that system tick. I wish all of you out there the best of luck in your trading adventure. Keep on putting in the work and the markets WILL pay you for your efforts in the long run.
Keep at it team!
If you’d like to review some of the processes on how I used the S.T.E.P. System to backtest and develop my rules, see these blogs:
- Friday Feature: The Scouting Reports Backtest Series Part I: Why I started the backtesting
- Friday Feature: The Scouting Reports Backtest Series Part II: What I learned from backtesting
- Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading
- Friday Feature: The Scouting Reports Backtest Series Epilogue
Justin Driskell
Justin started his trading journey during a 3-day workshop with Tim Justice in April of 2018. He has always been interested in the financial markets and the opportunity it potentially provides. He likes trading stocks and options. Outside the markets, he’s a husband, father of two boys, and full-time automotive technician.
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Thanks for your insight Justin.
Mariana