Steve Palmquist.Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. Trading is about risk management. In order to understand what the risks are traders need to understand exactly how and when their trading patterns work. Testing different tools, and understanding how each trading tool performs in different market conditions, is one way to get a clearer picture of what is an effective trading tool and how to use it. Identifying and developing trading systems with an edge is a lot of work. Making the trades is the easy part. Too many traders skip the analysis part and end up losing money because they have not put in the effort to develop trading tools that provide an edge. Trading some technique without having carefully tested and analyzed it generally leads to disappointment. The traders job is not to focus on making trades, but instead to focus on what types of patterns should be traded; and in which types of market conditions each trading tool works best. Trading should be data driven, not based on emotion, wishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks.