How to find trading ideas

trading-categories-light-bulbThere are patterns in market prices—of this, there is no doubt. Some small set of these patterns even can help us with our trading and investing. Some are worthless. And some aren’t even there at all—they are literally figments of our imagination-laden cognitive biases! What do we do about this, and how do we learn to understand and to read the market’s patterns well?

I’ve written extensively about the need for statistical testing to separate the good stuff from the garbage. You can do that testing many ways; the most complex might be to build (or otherwise acquire) a testing framework written in a “real” programming language like C++, Python, or Java. (Yes, I know some of you programming types are already preparing to email me about my list of languages. At least I didn’t include FORTRAN…) You can also use existing software, or, at the extreme other end of complexity, you can simply do visual testing with a little record keeping.

All of these can lead to valid insights, but that’s not what I want to focus on today. Yes, at some point early on you need to do the hard work to separate the gold from the dross. Yes, you need to do that testing to protect yourself against natural cognitive biases. But before that, there must be an idea. Where do we get ideas about how the market moves and what might be worth testing?

Finding ideas from the market itself

When we get into the later stages of testing, system development, and then actual trading, there is clearly a right way and a wrong way. There are ways to do things that will probably make you money, and ways that will probably cost you money. But, in the early stages, there is no right or wrong. There’s no way you can make mistakes in the very early stages of idea generation. In fact, you have to approach this work with a childlike sense of wonder and play.

So where do the ideas come from? While it’s remotely possible that someone with no experience could have an idea that turns out to be a good idea, that’s not the way it usually works—it’s far more likely that your ideas, the ideas that eventually turn out to be profitable, will come from your experience and exposure to the market. The best way to get ideas is to be in the flow of the market.

With that in mind, here are a few things you can do to speed your idea generation along:

  • Be exposed to a lot of market data. Pay attention. This seems like a silly thing, but it isn’t. Attention is a precious resource, and you consciously decide where and how to allocate it. Focus your attention on the market. Pay attention to what happens after other things happen. Eventually you will start to draw some connections.
  • Look at a lot of charts. People talk about “screen time”, which means that you have to spend a certain amount of time in front of the screen looking at charts. Look at charts on different timeframes. Look at charts of different markets. Look at relationships between charts. Look at charts on timeframes you don’t normally trade. Just look at patterns on charts.
  • Take some notes. How you want to do this is up to you, but keep in mind this is not testing. This is opening the doors of your perception very wide, and letting everything So, jot down pattern ideas. Make pages where you sketch outlines of chart patterns you want to trade. Make text notes about relationships of highs and lows and closes that look potentially interesting. Keep another page of ideas and other questions to explore. Even just doodle mindlessly while looking at charts—these doodles might be a communication from a deeper part of your mind.
  • Read a lot and listen to a lot of people talk about markets. The vast majority of what you hear and read will be garbage, but so will most of what you see. What we’re looking for are the few seeds of good ideas that can grow into something more. Higher quality inputs will lead to higher quality results. So books with titles like Dude, Crush the Freakin’ Market! or a $0.99 ebook on using moving averages probably won’t add a lot to your thinking. Better books might, and so might academic research. You might even find some ideas in interviews and news articles.

What next?

Next, some hard work comes, but don’t worry about that at first. At first, you need to immerse yourself in the flow of data and allow that powerful pattern recognition machine in your head to draw connections. Later, we’ll do the work of sorting out the false connections from the good ones, and the illusion from the real—this is the work of statistics and system development, but all of this work starts with ideas.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 7 Comments

  1. Thomas Dall

    Great post Adam. I have binders filled with notes, ideas, sketches, etc. Most of it is garbage of course but it was from there that my (few) good ideas sprouted.

  2. cesarcf1977

    Hi Adam. If you had to chose a single (ideally free) source for trading research materials, which one would it be? Something like SSRN? Besides what’s already in your site’s reading list, any book that has surprised you lately? Thanks and regards.

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