All setups need followthrough to work. What good setups have in common is that they are more likely to followthrough and offer a place to logically manage risk. Where they differ is the place in the chart where they originate from. I compare this to waves on the beach. If you watch waves they sometimes pull back a few meters before they have 'followthrough' back to beach. The next wave might pull back a lot deeper but can also follow through a lot more. If you're a surfer and you can find a good surfspot (stock selection), find a good wave (setup selection) in the right time of the year (market environment), you can ride a pretty big move. And ofcourse exiting the wave at the right time is crucial! :)
Wow, this stack couldn't have been more timely. I've recently been moving from looking for setups to placing more emphasis on the actual stock. Reading this stack, the next step will probably be learning to use a lot more different setups as tools to ride these stocks. Thanks!
From what I'm experiencing (and this will probably evolve, or be refined, with time), you do need to learn about more setups, but don't have to use them all. I think the key is looking at your strategy holistically, and mapping different setup success rates against different market environments. When does your setup work? What variations are there? When do those variations work - is it substantially different to your main setup? What setups really belong to the same strategy? Stuff like that. The nuances most never even think about, never mind understand.
Thinking about Anthony's TL interview, when he talked through his processes and templates, he explained that although he didn't trade all patterns he was tracking, he tracked them to get a better feel for the market and, by extension, understand when his own setups were more likely to work.
Perhaps the most obvious example of this sort of thing is the parabolic short. Even if you never short, you need to be able to recognise this setup, as it informs you when it's time to take profits. I remember Marios tweeting about this too, among others.
Those are more specific examples or implementations of what I discussed in the link above: humans tend to define one thing in relation to another. For traders, by understanding when a different setup appears and works, you better appreciate when and why your own setup might work.
Hope that's of some use? I hope I'm not totally wrong here - pretty new to this level of trading myself, learning about the overall ecosystem/taking a more holistic approach, and still so much to learn. No doubt I'll be discussing all this again in a new stack in due course, as I learn more!
Thanks, it is really helping me as I am struggling in the state now. Consolidation & breakout setups are not working in downtrend market. Do you have any resources which setups are working in different market conditions (uptrend, downtrend, range)?
Another great article from you. I really like how you can structure very complex topics and bring in your own perspective and understanding. The more i learn about this and understand a little bit more, i get back to KQs words in his streams, e.g. when he points out to keep things simple: scan for the strongest stocks on different time levels (1,3,6,12 months) and that’s all you need to do. That aligns with your point that it’s not done with scanning thousands of random stocks, but you need to see what the STRONGEST stocks do. Then you need to recognize the setups of course and be really good in handling a very limited number of setups.
Anyway, i have added this also in my daily routine to check last weeks biggest movers and see what industries and themes are in play. Still wondering though if it maybe also worth it to try to anticipate which stocks are setting up, e.g. by showing pullbacks or VCPs, and what that could tell about the next hot stocks and themes. Maybe that makes things too complex and confusing though.
Re your first para: yes, that's a good way of putting it.
Re your second para: I think that seeing which themes are showing strength and are setting up are all part of the same SA-related activities. Is that complex? Perhaps, but not in an unnecessary way. And with experience and practice, you'll be able to make sense of larger quantities of data more easily.
I think this also ties into something more fundamental: you need to learn how stocks move. And you do that by studying thousands of charts. From there, as Stockbee says, it's about creativity and innovation -- you need to figure out a way of (1) finding stocks before they make those moves and (2) how you can trade them. You don't necessarily want to wait for the 'traditional' breakout at that point because risk-reward may be less favourable. Nothing changes in the markets in the sense that stocks will continue to move in 'legs', consolidate, then break out again (which comes back to learning how stocks move), but there are different ways of capitalising on that, and that'll require some creativity. Doing something that works for your personality and style, and also doing something that may be less saturated.
This was a fun read! It's trading stories like that which get a lot of us interested in markets. I do want to say though, Dan is a huge outlier. Kind of like a Michael Burry with the bet against the housing market, or George Soros shorting the British Pound. These stories are fun to learn about, but most of us Joe Shmo's need to focus more on how to make an honest living with 20-30% annual returns in the market over time. If you can annualize at any more than that over a decade or three it would put you in the top 0.10% of returns all time. I like shooting for the stars and all, but don't forget to bring it back to reality every now and again!
And I get what you're saying: many of us aren't Zanger. Or Qullamaggie, etc.
But why is that?
I think many would put it down to luck or talent. And while those may be factors, that's not really what sets them apart.
I think it's their genuine curiosity and passion for the markets and trading, combined with a willingness to put in tens of thousands of hours. They didn't stop at the minimum 10,000 hours required for mastery -- they went way beyond that.
They also made sure to do the RIGHT kind of studying -- the deliberate practice that actually moves the needle, not the 'challenging but tractable' stuff most people tend to stick with.
It wasn't just learning setups; it was learning how to pick stocks. It was learning market cycles. It was learning how to identify groups/themes. It was putting all those pieces together into a system that worked for THEM.
Following all that, they had to make sure they executed that system properly! Across years and decades -- long-term. A month of discipline isn't enough.
That system is different for different people, and not all systems have the same expectancy, obviously. As you point out, consistently achieving more modest returns already outperforms significantly. Because most people won't do this work. Laziness may well play a part in that, but another part is that very few people have true passion for trading itself.
All setups need followthrough to work. What good setups have in common is that they are more likely to followthrough and offer a place to logically manage risk. Where they differ is the place in the chart where they originate from. I compare this to waves on the beach. If you watch waves they sometimes pull back a few meters before they have 'followthrough' back to beach. The next wave might pull back a lot deeper but can also follow through a lot more. If you're a surfer and you can find a good surfspot (stock selection), find a good wave (setup selection) in the right time of the year (market environment), you can ride a pretty big move. And ofcourse exiting the wave at the right time is crucial! :)
Wow, this stack couldn't have been more timely. I've recently been moving from looking for setups to placing more emphasis on the actual stock. Reading this stack, the next step will probably be learning to use a lot more different setups as tools to ride these stocks. Thanks!
Great to hear, Maikel! This section in "6 Criteria for Explosive EPs" may be worth revisiting, too: https://tradingresourcehub.substack.com/i/144592337/how-different-setups-interplay
From what I'm experiencing (and this will probably evolve, or be refined, with time), you do need to learn about more setups, but don't have to use them all. I think the key is looking at your strategy holistically, and mapping different setup success rates against different market environments. When does your setup work? What variations are there? When do those variations work - is it substantially different to your main setup? What setups really belong to the same strategy? Stuff like that. The nuances most never even think about, never mind understand.
Thinking about Anthony's TL interview, when he talked through his processes and templates, he explained that although he didn't trade all patterns he was tracking, he tracked them to get a better feel for the market and, by extension, understand when his own setups were more likely to work.
Perhaps the most obvious example of this sort of thing is the parabolic short. Even if you never short, you need to be able to recognise this setup, as it informs you when it's time to take profits. I remember Marios tweeting about this too, among others.
Those are more specific examples or implementations of what I discussed in the link above: humans tend to define one thing in relation to another. For traders, by understanding when a different setup appears and works, you better appreciate when and why your own setup might work.
Hope that's of some use? I hope I'm not totally wrong here - pretty new to this level of trading myself, learning about the overall ecosystem/taking a more holistic approach, and still so much to learn. No doubt I'll be discussing all this again in a new stack in due course, as I learn more!
Thanks, it is really helping me as I am struggling in the state now. Consolidation & breakout setups are not working in downtrend market. Do you have any resources which setups are working in different market conditions (uptrend, downtrend, range)?
It's also a matter of experience. Some things you don't truly internalise until you've gone through it personally.
Maybe this section helps too: https://tradingresourcehub.substack.com/i/144592337/how-different-setups-interplay
Thank you for your advice and the link.
It crops up in Qullamaggie streams a bit, but you'd have to dig. Best thing is to do your own deep dive though: https://tradingresourcehub.substack.com/p/doing-a-deep-dive-what-why-how
Thanks for the suggestion. Will go through the article.
Another great article from you. I really like how you can structure very complex topics and bring in your own perspective and understanding. The more i learn about this and understand a little bit more, i get back to KQs words in his streams, e.g. when he points out to keep things simple: scan for the strongest stocks on different time levels (1,3,6,12 months) and that’s all you need to do. That aligns with your point that it’s not done with scanning thousands of random stocks, but you need to see what the STRONGEST stocks do. Then you need to recognize the setups of course and be really good in handling a very limited number of setups.
Anyway, i have added this also in my daily routine to check last weeks biggest movers and see what industries and themes are in play. Still wondering though if it maybe also worth it to try to anticipate which stocks are setting up, e.g. by showing pullbacks or VCPs, and what that could tell about the next hot stocks and themes. Maybe that makes things too complex and confusing though.
Thanks very much, Manuel!
Re your first para: yes, that's a good way of putting it.
Re your second para: I think that seeing which themes are showing strength and are setting up are all part of the same SA-related activities. Is that complex? Perhaps, but not in an unnecessary way. And with experience and practice, you'll be able to make sense of larger quantities of data more easily.
I think this also ties into something more fundamental: you need to learn how stocks move. And you do that by studying thousands of charts. From there, as Stockbee says, it's about creativity and innovation -- you need to figure out a way of (1) finding stocks before they make those moves and (2) how you can trade them. You don't necessarily want to wait for the 'traditional' breakout at that point because risk-reward may be less favourable. Nothing changes in the markets in the sense that stocks will continue to move in 'legs', consolidate, then break out again (which comes back to learning how stocks move), but there are different ways of capitalising on that, and that'll require some creativity. Doing something that works for your personality and style, and also doing something that may be less saturated.
Hope that's helpful?
This was a fun read! It's trading stories like that which get a lot of us interested in markets. I do want to say though, Dan is a huge outlier. Kind of like a Michael Burry with the bet against the housing market, or George Soros shorting the British Pound. These stories are fun to learn about, but most of us Joe Shmo's need to focus more on how to make an honest living with 20-30% annual returns in the market over time. If you can annualize at any more than that over a decade or three it would put you in the top 0.10% of returns all time. I like shooting for the stars and all, but don't forget to bring it back to reality every now and again!
Thank you, Christos!
And I get what you're saying: many of us aren't Zanger. Or Qullamaggie, etc.
But why is that?
I think many would put it down to luck or talent. And while those may be factors, that's not really what sets them apart.
I think it's their genuine curiosity and passion for the markets and trading, combined with a willingness to put in tens of thousands of hours. They didn't stop at the minimum 10,000 hours required for mastery -- they went way beyond that.
They also made sure to do the RIGHT kind of studying -- the deliberate practice that actually moves the needle, not the 'challenging but tractable' stuff most people tend to stick with.
It wasn't just learning setups; it was learning how to pick stocks. It was learning market cycles. It was learning how to identify groups/themes. It was putting all those pieces together into a system that worked for THEM.
Following all that, they had to make sure they executed that system properly! Across years and decades -- long-term. A month of discipline isn't enough.
That system is different for different people, and not all systems have the same expectancy, obviously. As you point out, consistently achieving more modest returns already outperforms significantly. Because most people won't do this work. Laziness may well play a part in that, but another part is that very few people have true passion for trading itself.
I regularly "bring it back to reality" on this Substack. E.g. https://tradingresourcehub.substack.com/p/routine-of-part-time-trader-clement-ang and https://tradingresourcehub.substack.com/p/deliberate-practice-shortcut-manual-effort
Great thoughts!