Traders, What’s In Your Probability Stack?

A few years back, I read Dilbert Guy Scott Adams’s book How to Fail at Almost Everything and Still Win Big. It popularized the concept of the “talent stack”.  Adams asserts that you don’t have to have world class skills to be successful in life, you just need to acquire adequate competence in a few complimentary skills.

How does this relate to trading? Every successful trader I know possesses a “talent stack” of skills he or she has honed over years in the markets. Some of these are life skills like self discipline or attention to detail — things which might apply to any career. But others are trading specific, understanding of technical methods or techniques which guide their trading. These market-specific skills are what I can one’s probability stack.

Any technical trader knows that no individual indicator works every time. Some indicators you can readily test and quantify how they performed in the past, and some you can’t. But nothing is foolproof. And this is where the probability stack comes in: Using complimentary techniques can improve the accuracy of your trades, and  increase the your probability of success.  Hence the question:

What’s in your probability stack?

Just as with Scott Adams’ talent stack, having more tools in your probability stack increases your odds of success.

How does this work? My old friend Tim Morge spoke of confluence of Andrews Pitchfork lines (his forte). This was where different pitchforks suggested support or resistance in the same area. The same idea works with differing techniques the way it works with Morge’s pitchforks.

A trade’s probability of success increases when
it is indicated by multiple analysis techniques.

New Insider Bars users sometimes ask me how I use it to trade. When I tell them how I combine it with geometry, basic Elliott Wave, related markets, etc.,  the response is often frustration. They don’t want to think about all that; they just want to know how to trade with order flow.

And given the industry’s marketing hype, I can’t blame them. If you are one of those outfits selling traders a $5,000 order flow package, it better be all they need! But what is best for selling software is not what is best for the trader’s bottom line.

My Probability Stack

So below is my list. To you, it may sound like a lot. But keep in mind that most I have used for so long it is run by my subconscious – just like driving a car.

Basic Elliott Wave Theory I don’t mean counting and labeling every tiny zig and zag on the chart, but the basics: Is XYZ in an impulse or a  corrective wave and on what time frame? My Elliott opinion on any given market is not always right, but it is more often than not. So using it increases my probability of success.

Market Geometry I use G Square Pro geometry in my trading, which combines geometry with natural time cycles (days, weeks, months, etc.) For me, it serves as my road map.

Order Flow Analysis Order flow and volume analysis is the most important advance in trading technology in many years. Some aspects represent direct support and resistance levels. But just important is the micro volume analysis, which shows you whether the market is confirming your market hypothesis with volume.

Market Breadth Market breadth is the analysis of the underlying stocks making up the index you are trading, for example the cumulative advance-decline line. Patterns form in these statistics just as they do in the futures market you are trading, and often they will confirm or discount analysis of the futures market.

Related Market Analysis No market exists in a vacuum. Sometimes Nasdaq or Russell 2000 drive the S&P 500. Understanding patterns unfolding in related markets sometimes gives me a leg up, compared with following one market I am trading.

One thing that applies to all of the above is that they apply to multiple timeframes. Elliott Wave is considered fractal in nature, i.e., reproducing the same patterns in smaller and smaller degrees. But the same applies to everything. Weekly cycle geometry supports daily cycle. Weekly VWAP and value area are just as important as daily. And on and on.

Finding your probability stack

Years ago, I attended a trading psychology seminar by the late, great Mark Douglas. He told a story about an auto mechanic and his apprentice diagnosing a car. The apprentice was frantically checking this fluid and that, and still had no idea of the problem. The mechanic walked over and immediately told him what needed repair based on the sound of the engine alone. His experience told him something the apprentice had yet to learn.

The path of every trader is different. My stack evolved over many years of my experience. Your experiences are different, so your stack will be different. I would encourage you to meditate on the concept, What’s in my trader probability stack.