Your Strategy Needs a Story
Every strategy should explain WHY it works: If you can’t explain it, you won’t trust it.
Most struggling traders don’t lack strategies—they lack belief in the strategies they’re using. That belief doesn’t come from back tests alone. It comes from understanding why a strategy should work in the first place.
On professional trading desks, no strategy survives without a solid story. A clear explanation of what market behavior the strategy exploits and when it should fail.
Why “Story” Matters More Than Signals
When markets move against you (and they will), your reaction depends on whether you understand the logic behind your approach. If you don’t, doubt creeps in. Doubt leads to rule-breaking. Rule-breaking destroys edge.
Behavioral research shows that uncertainty without explanation increases emotional behavior, stress and reduces adherence to plans.
Here’s an example: Let’s say you’re not familiar with the depth and duration of a drawdown your strategy is likely to encounter. When it happens, your tendency will be to abandon that strategy. Bad idea. With a solid strategy “story”, you’ll be able to tell normal variance from true failure.
Common Strategy Stories
- Trend Continuation
Why it works: markets exhibit momentum because institutions scale positions over time, and information diffuses gradually.
When it fails: choppy, range-bound conditions. - Mean Reversion
Why it works: prices overshoot due to emotion, liquidity shocks, or short-term imbalances.
When it fails: strong, news-driven trends. - Volatility Expansion
Why it works: volatility tends to cluster; quiet periods are often followed by large moves.
When it fails: continued compression. - Volatility Contraction / Risk Premium Capture
Why it works: option sellers are compensated for bearing uncertainty.
When it fails: tail events and regime shifts.
Our stock/option swing trading team follows a story that is much less common among non-professional traders and produces truly asymmetric results (learn it here).
- Insider Information
Why it works: Key executives and major options traders know about future announcements that can spike price and place large “bets” on these events.
When it fails: The event fails to occur or the timing is delayed.
If you can’t name which story your strategy belongs to, you’re trading signals—not structure.
Professionals Trade Stories, Not Indicators
Jack Schwager’s interviews with elite traders (Market Wizards) reveal a consistent theme: they know exactly why their approach should work and when to step aside. This clarity allows them to sit through drawdowns without flinching—and to stop trading when conditions no longer fit the story.
How to Pressure-Test Your Strategy Story
Ask three questions:
- What market behavior does this exploit?
- When should it struggle?
- What evidence would tell you the story is broken?
If you can answer those, trust in your strategy follows.
A strategy without a story feels random. A strategy with a story feels repeatable. And repeatability—not prediction—is what professionals trade.
To your trading success!
Mike Siewruk
PS: Was this advice helpful? Feel free to pass this link for a FREE membership to Trade Aptitude along to your trading buddies: thedailymarketforecast.com/signup