Trade Ideas Blog

5 Modeling Techniques of Any Decision Support Tool

Jan 28, 2009

TodayI gave about 250+ traders from VCM (Velez Capital Management) a chance to get personal questions answered and see first hand how the platform performs in the hands of its custodians (me).

I want to share with you the essentials of what I presented to them; namely, what challenges Trade-Ideas resolves for traders and what modeling techniques consistently yield the best results in Trade-Ideas or any other tool.

Common challenges facing traders – in their words:

(Note: these are culled from our customer support experiences and testimonials)

  • “I’ve been taught a certain method of trading, but it’s hard for me to find the stocks in terms of time and the effort it takes”
  • “I’m looking at the same information everyone else is – often times I’m shaken out of a trade”
  • “Keeping track of just the 10+ stocks I follow means I miss some opportunities with a stock while I’m watching another”
  • “I need something to help me find some good trades that I will like, as well as keep me out of bad trades”
  • “I am limiting myself by trading the best of what I am watching, which on some days was not worth waking up for”

Other trading challenges:

  • Information overload: like having 500 channels and nothing to watch
  • How much research has to be done ahead of time to prepare for a day of trading?
  • How many analysts exist doing the same thing for institutional firms?
  • How can an individual really compete with large hedge funds that pay thousands of dollars for such analysis and research?

Any of these resonate with you? If it’s not Trade-Ideas helping with these challenges, keep looking for the tool or approach that will.

Modeling Techniques – Rules of Thumb

These techniques work in any other decision support tool. Let me know if others come to mind as well.

  • Don’t start from scratch at the beginning; Do modify an existing strategy to fit your trading plan
  • Articulate clearly the pattern you wish to idenitfy – writing it down first (like a grocery list) can clarify your purpose (vs. shopping while hungry)
  • Draw your best trade on a chart and clearly label each axis – this works in selecting the correct alerts and filters for your timeframe
  • Separate bullish or up-trending strategies from bearish or down-trending strategies – this allows for more ways to ‘stack the probabilities’ of movement in a certain direction
Tomorrow I will post some of the strategies we modeled during my presentation.