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Trading Education Posted by Team Topstep June 10, 2021

What Makes Research Valuable?

By: FairValueTrader

For a significant portion of my life, I was surrounded by a social group that would often refer to “research” when gathering their information. This kind of research might often include some self-help remedies, and other times it was an attempt to fact check the information provided by physicians or news outlets. 

I recall when the concept of research changed me. I was set to begin work on a master’s thesis and take a research class. Suddenly, images of Google searches and Youtube videos were supplanted by a complex set of ideas that made me appreciate genuine research. Fast forward to the past two years when I began to work on a Ph.D. dissertation, and research concepts became more real to me as I became increasingly aware that proper research is hardly easy.

Since the time of my master’s thesis, I’ve worked in the professional and retail trading industries; in my career, I still encounter varied ideas of what research is. In today’s article, I will address research concepts, specifically highlighting three things that are often thought of as research, but when used alone, don’t constitute research. Then, I’ll identify five key components outlining, in part, what effective research is. Finally, I will add a bonus to that list, giving an additional critical trait of research.

Before I list the ingredients that do and don’t constitute genuine research, let’s walk through the ways that traders employ this type of analysis throughout their careers. 

1. Technical Analysis

Most traders, especially those who rose through the retail end— meaning they weren’t trained in a professional vocational environment— tend to be technical traders. This is for a good reason; the fundamental concepts of technical trading are probably easier to identify and grasp than alternatives. Furthermore, the material for technical trading is much more readily available, and this style tends to suit many short-term traders better.

2. Fundamental Analysis

I suspect most readers are short-term traders utilizing technical setups. Therefore, it’s not likely that many of you employ a great deal of fundamental analysis. This style incorporates the economic and sometimes political factors that underlie market activity and can be very complex, fluctuating between macro and micro frames.  

3. Psychological Analysis

My regular readers are probably aware that most of my writing overlaps with psychological analysis. I’m using this term broadly because much of my psychological research includes physiology. However, we know that these two elements are closely related; for example, a person’s sleep habits can be both highly psychological and physiological. In addition, so much of our trading results have to deal with how our minds, emotions, and bodies respond to tension, which often affects our discipline. Therefore, this area of research remains a critical component of trading research. 

Now, I will address what genuine research isn’t.


1. Youtube, Blogs, and Twitter

Okay, before this feels like a low blow, let me clarify my statement. Yes, these avenues may be helpful in your research, however, they hardly qualify as a primary basis of research. First, these venues are often occupied by blurbs, sales gimmicks, and all kinds of advertisements. There’s no substantial reason to assume much more than what you see on the surface. In all fairness, you can apply the same to this article! 

But let’s get real. Sure, there are some valuable resources shared on these outlets and they shouldn’t be discarded, even in research. The point is, this type of information alone doesn’t justify a research conclusion. 

2. Research is More Than Data Collection

Once I address this misnomer, then the previous paragraph will make more sense. Unlike what is popularly thought, research is more than just having a collection of data. In other words, gathering information is a crucial step in research, but the project doesn’t end there. Genuine research is then synthesized to produce some outcomes. I’ll address this with more clarity later in this article. 

3. Research is More Than Chart Browsing

Yes, technical research does involve observing previous price action in many cases. However, walking through past charts and applying “what ifs” alone is not research; that said, it may be the start of a significant research project. I have found that the clearest charts to trade are yesterday’s. Any of us can be an expert on what happened in the past and call the previous session’s highs and lows flawlessly, but authentic research moves beyond this type of activity. 

Now that I’ve addressed the negative side of research, I will focus my attention on the positive aspects. 


1. Research Begins With a Problem

I’m not a very technical person, so understanding the sophisticated aspects of research didn’t come naturally to me. However, I can break it down. All research involves the identification of a problem. This so-called “problem” doesn’t mean anything is wrong. Think of it in terms of a math problem, a series of equations that needs to be solved. 

Closely aligned to this is the research question, which is a way of addressing the problem. A sample research question could be, “how might a mean reversion strategy on X market benefit from applying standard deviations from Y timeframe?” In this sample scenario, the initial problem might have been how to improve upon an existing mean reversion strategy. 

2. Research Always Has a Plan

Once a problem and subsequent question are identified, then the goal becomes more apparent. However, to reach that goal, there needs to be a map or plan that enables you to know when you have arrived. For some people, the problem and question are easy; meanwhile, the plan is more challenging. For others, the opposite is true. 

As an example of a research plan, I’ll include the same hypothetical scenario I previously used, which sought to improve a mean reversion strategy. The plan might involve adjusting specific variables, applying different filters, and then backtesting to see if better results are produced.  

3. Research Employs Critical Analysis

When I began to work on my major research projects in academia, I learned that I could not merely be descriptive, but I needed to engage in critical analysis. This meant that I couldn’t just accept my sources as being valid; I needed to demonstrate that I could test other theories that I was using as the basis of my application via critical thinking. This is the critical difference-maker when retrieving information from any source, especially popular media like Youtube. Data is like a meal; sometimes, it needs salt to be poured onto it to make it edible; other times, you may have to pick the meat off the proverbial bones. 

4. Research Gives New Information

Simply put, if you aren’t finding any conclusions that you didn’t already expect, then chances are you are missing steps somewhere. This doesn’t mean that your entire hypothesis has to be in error, but rather, there should be specific ideas that you will alter or change altogether somewhere along the way. Research is testing results, and even if you arrive at the conclusion you expect, there should be something along the way that challenges the initial expectations that may give you more material for further research. 

5. Research Is Trying Something New

Fundamentally, the research seeks to contribute original knowledge to the existing field. Therefore, you can’t be overcome by a reluctance to attempt something new. Of course, nobody wants to waste time with a silly idea, but new ideas aren’t necessarily foolish. With all the various technical indicators, systems, and various markets, some endless combinations and variables can be adjusted across many timeframes to keep any researcher content to try new things. After all, the bedrock of new results usually rests in a mastery of existing knowledge. 

BONUS: Research Isn’t Afraid To Be Wrong

Just because your conclusions may prove your hypothesis wrong, or just because you don’t find a solution to your problem, doesn’t mean that your research was useless or wrong. If you carried out a good plan, but the results disappointed you, then you eliminated a possibility, which in itself can still be helpful information. Furthermore, you likely learned something along the way. The worst possible way for you to respond is by refusing to acknowledge the reality of the results and failing to be self-critical. At the heart of a researcher is a desire for honest facts, therefore when done correctly, research that demonstrates a failed hypothesis is just as successful. 

My hope is that these ideas serve to benefit your research style. Remember, trading is a process of continual evolution. When we get lazy, we begin to decay. There are other pertinent areas of research that I didn’t include in this article, but perhaps you will discover them along the way. Until next time, trade well!