What Is the Best Trading Tool You Can Get for Free?

Don’t listen to the fancy indicator pitches. You already have the best trading tool one can get.

“Knowing yourself is the beginning of all wisdom.” — Aristotle

It may sound extravagant to start a trading story with a self-awareness quote. Yet, I cannot think of better entry to this story than these wise words of Aristotle.

Once you start trading, there are many basic concepts you should learn first. Support, resistance, Fibonacci, RSI, MACD, moving averages, and many more technical analysis tools are only some of these, and they may indeed leverage your trading up to a point once you learn how to use them.

On top, you will come across many people pitching their “perfect” tool that will magically turn you into a profitable trader. The more you go into the rabbit hole, the more options you’ll find to use to leverage your trading.

Would it worth investing in many false promises to find it out for yourself which of those really works? Honestly, I don’t know.

But let me tell a brutal fact: No such tool will determine your risk appetite, psychology, anxiety, and greed while you’re entering or exiting a trade. Thus, no tool you’ll buy will make a remarkable difference in your performance if you already got the basics right and if the problem was not about your toolbox anyway.

Been there, done that, and after initially losing some money in trading options, then earning some of it back while learning to trade, I arrived at a point where pluses of some months were only neutralizing the minuses of others.

I knew that learning more tools and techniques would only have an incremental impact on my overall profitability. I had to do something different.

That’s when I decided to analyze my own trades rather than solely relying on technical and fundamental analyses or trusting fancy tools and indicators.

Here are some learnings I got from a closer look at my 556 trades.

1. Performance, based on the specific assets

Options trading is a two-way street with the possibility of being on the short side to earn from a falling price or the long side to earn from a rising price. Thus your positioning is usually more important than the direction of the market.

This nature of the system sets how you perform trading a certain asset in front of how the asset performs in a market. So finding out which assets suit you best is essential.

As a result of my analysis, I’ve noticed that I perform better trading Apple stocks than Amazon stocks.

Knowing these assets will already have a significant impact on your overall performance. Still, if you want to go one step further, the reasons behind your performance are the 2nd layer of this analysis.

As your success in these assets may be due to your expertise in the company or industry, it may be your exposure to certain news or information sources, etc. No matter what, it’ll allow you to reproduce this success with other similar assets.

The same applies to the assets you perform the worst. Once detecting these assets, avoiding them in your trades, further finding the reason for your performance, and avoiding other similar assets, sharing the same underlying position from your perspective may save you a significant amount of money.

Digging deep into my performance revealed that I was better at trading Apple stocks than Amazon stocks, not because they performed differently but because Amazon has a higher stock price. Let me explain why.

I’m usually risking a fixed amount, 5% of my portfolio, in every trade I enter. Therefore, a higher price means I was using bigger leverage when trading assets at a higher price.

Before the stock split, AAPL was valued 1 10th of AMZN and allowed me to use lower leverage, making a remarkable difference in the results. Thus, I’ve started trading more AAPL than AMZN, and believe me, it made a huge difference.Why Most People Lose Money Day-Trading (And How to Not Be One of Them) | Data Driven Investor
Day-trading is hard, and most people lose money at it. I definitely have. In fact, I once lost more money in a single…www.datadriveninvestor.com

2. Are you better at buying or selling?

As I explained before, options trading can make money in both ways if you’re positioned right. It may also act as a two-edged sword that would cut you from both sides if you’re positioned on the wrong side.

Therefore, I’ve analyzed my longs vs. shorts and found that I was making 3 times more money from my shorts than longs.

This was an interesting finding for me as the rule of thumb for the markets is that they generally go up in the long term. So, it always seemed to me that buying would make more money than selling.

It may indeed be the case for long term investing, but trading options is more short time-oriented. Thus, all the rules of investing may not be viable for options. This finding gave me quite a perspective.

The aforementioned result was mainly driven because of the same assumption that stocks always go up. It gives one a false sense of confidence when entering a long trade.

So I enter long positions with less analysis and more with a leap of faith. In contrast, I only enter the short positions only if I did all the due diligence and have big confidence that the stock will perform poorly in a given period.

My short positions avoid confirmation bias by nature and make more money as they rely on more objective analyses.

3. The order type: Take Profit vs. Stop Loss

It may sound more sensible to make more money from “take profit” exits than “stop-loss” exits as their names already state that one is to realize a profit and the other is to admit the failure and take the loss not to lose further.

Yet, for me, it’s not the exact case. I’m chasing my winning trades with an acceptable stop-loss, not to lose the money I already made. So it’s a common thing for me to close a position that is making money with a stop-loss limit order.

Thus I’ve compared my take profit exits vs. stop-loss exits only for trades I closed in profit.

This analysis allowed me to see if it was better for me to set a take profit limit when I was entering a trade. In this case, I usually realize the profit when the price reaches my target. The alternative is chasing my order with a stop-loss while winning and only realizing the profit if it makes a significant turn from its direction.

The results were again surprising. I always had the presumption that you have to set your stop-loss and take-profit limit orders even before entering a trade and stick with it. Once again, I was wrong.

I figured that I was performing way better with my stop-loss closes as it allowed me to let a winning trade keep winning and avoid a premature close.

4. Trend Reversal vs. Trend Continuation

To be fair, I’m not only going to share my learnings from my falsified assumptions.

From time to time, proving that I was doing at least somethings right, even before my self-analysis, helped boosting some self-confidence. So I kept what was already working as part of my future strategy as well.

One of these findings was that betting on the continuation of a trade, which means entering a trade on the buying side when the stock’s overall trend is positive in general, brings better results than believing that the trend will turn around from a price that is close to my point of entry.

The stock market is quite unpredictable when it comes to short time pricing. It’s an up and down game around the fair valuation of a stock. However, if a company is doing good, the stock generally tends to go up in the mid, long-term, and down if it fails operationally.

Therefore, it’s best to zoom out a little bit and see the general direction the company is headed. From my personal analysis, I’ve seen that my trades in line with the company’s general performance have always outperformed my trades against the bets on a reversal of the trend.

After all, it’s naive to believe that you bought the bottom of an asset that has been losing value for 5 consecutive years. If you did, well done, by the way!


The main takeaways from this piece may seem like:

  1. Trade AAPL instead of AMZN
  2. Be on the seller side, rather than the buying side
  3. Use stop loss to exit a trade instead of a take profit as a limit order
  4. Never bet against the trend

Yet, these points are far from being the main takeaways of the piece. At least not for you!

I’ve analyzed my own trades to reach these findings. Yet, for you, bigger price quotes may bring better results, long positions may be more profitable than the short positions, and take profit or even manual exit from trade may boost your outcome, contrary to my findings.

The only takeaway is that no matter what tool you have in your bag if you’re making the same mistakes over and over again on your trades, there is no way to escape from a losing streak.

It would help if you look into your trades, find what is working and what is not working for you, and re-adjust your strategy. Then do this over and over again till the end of time, never to repeat the same mistakes.

“Insanity is doing the same thing, over and over again, but expecting different results.”
Anonymous (not Einstein as many think so)

This article is originally published on Medium.

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Disclaimer: This article is provided for informational or educational purposes only and is not any form of individualized advice. Use this information at your own risk.

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