The Relative Importance of Your Trading Tools

I was referred to Brett Steenbarger’s blog of Nov 14 ( . As I read, it struck me that the tools we use in our trading plans are of less importance than having a plan.

Brett’s approach to the markets is very different to mine. He is a short-term trader and to gain his edge, he uses internals backed by statistical testing. I have had the honour and pleasure of meeting Brett and would say that his tools suit his personality.

I too use statistical testing but because I process sensory information visually {and to a much lesser extent kinesthetically (through feelings)}, I use tools that suit my personality: Barros Swings, the Ray Wave and the Market Profile are all used as visual mediums.

A fab example of this difference was Brett’s use of the volume at the bid (as the market moved down) as a target for identifying the end of the move up. I never thought of using volume that way. Incidentally, I also subscribe to Market Delta but what I find important is the shape of the profile at support and resistance areas.

Again last night provided an interesting example.

As you know from my blog, I went long early with a position that was half normal size. I then decided to use the breakout of the 1st hour’s opening range to enter the market for my remaining positions. But, the 30 minute volume profile on the 1st breakout (at 11:30) took the form of a bell curve. This suggested that the market would rotate back into the range and it did, all the way back from 1466 to 1459.

At 13:30 the market took out 1466 but this time the volume profile for the period took the form of a one-timeframe (trending) market. Sure I got filled 3 points worse off, 1469 rather than 1466 but I had an easy exit strategy if I was wrong about the breakout. A failed breakout with one-timeframe characteristics is likely to attempt a move in the opposite direction. This meant I could place my stops at 1457 under the start of the distribution (1459). This exit strategy was unavailable to me if the breakout took the form of a bell curve since that shape said that the probabilities favoured a rotation back into the opening range.

Score another important lesson for Pete Steidlmayer: it’s not the breakout price that is important. What is critical is how the market reaches the price (e.g. the form the breakout takes) and what the market does after reaching the price.

So, you’re probably asking what’s the central point of this posting.

It’s a simple one.

Newbies worry about some secret whiz bang, never fail, tool that will bring them untold riches. But such a tool does not exist. What is more important than the non-existent, never fail tool, is to find a tool or tools that match our personality. Unless we do that, we are likely to second guess our signals; such second guessing will lead to the slippery road of breach of discipline. So, rather than engage in a fruitless search for a non-existent super tool, focus instead on understanding your personality and find the tools that mesh with it.

5 thoughts on “The Relative Importance of Your Trading Tools”

  1. Hello Ray,
    Your blog is outstanding. Between Traderfeed by Brett and your Trading Success blog, traders can gain valuable knowledge and tools for our trading toolbox. You provide the tools that we need to find the tools that match our niche!
    Now with that said, I need to read a few things to get up to speed to better understand your blog. I’ve seen a couple references made to Pete Steidlmayer. Should I start with his writings or did you cover his methods/thought process in your new book? What is your view of the work of Dalton?

  2. Hi Robin

    Thx for your kind words.

    Peter’s books are hard to read. There are two archetypal Market Profiles. The traditional 30 Minutes ‘fixed profiles’ and the Steidlmayer Distribution (now also called Market Profile). SD has no fixed timeframe and a structure begins with a directional move (which I call an Initial Price Movement) and ends with the beginning of another Initial Price Movement.

    Dalton’s Mind over Markets is the classic for the traditional Mkt Pro. His new book Markets In Profile is not as good but there is a dearth of good books on the SD. Peter co-authored a book with Steve Hawkins: Steidlmayer on Mkts but much of it focuses on Pete’s software CapFlow.


    There is a new book that is not yet out by Aleander Trading:

    The CBOT site has a page listing all the older books that were written.

    One book listed was never prnted: “Steidlmayer’s Market Profile Workshop: A Hands-On Guide to the Methods of a Master Trader”


    Finally for a reasonably good free intro,3181,1184,00.html

    It’s an intro only as the handbook has not kept up with recent developments.

    The CBOT also has archived webinars on the Mkt Profile. They are so-so. I find they focus on the short-term without tying the shot-term into the context – subject of my next blog.

  3. Oh I forgot to mention: My book Nature of Trends does not cover Market Profile. I am currently working on one dealing with it and the Ray Wave.

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