The hidden power of a trading funnel

Hi everyone, I'm a husband, a dad of five, and a full-time trader. Taking the leap into full-time trading has been a journey full of lessons, challenges, and breakthroughs. Along the way, I’ve picked up concepts that have helped me stay the course through the ups and downs. As I’ve been jotting down these insights for myself, I realized they might be helpful to others—whether you're thinking about going full-time or just looking to sharpen your approach. **Here's my post:** As with any business, whether it be selling on Amazon, running a Shopify store, or offering some type of local service, each needs a sales funnel to attract customers. And not just any customers, but the *right* customers. Here’s what a typical sales funnel looks like: *(A sales funnel visually maps the customer journey from awareness to purchase, guiding potential buyers through key stages.)* https://preview.redd.it/pvrbj9ngucie1.png?width=1024&format=png&auto=webp&s=960fa08fb09f19090de57ad58a4fe398d69834c4 So why is a sales funnel important? 1. It gives the business a clear strategy for finding the ideal customer for its specific products or offering. 2. Improves understanding around where to focus effort and resources. 3. Most importantly, it filters OUT the wrong customers! I like to think of sales funnels like prospectors back in the gold rush days; when they were panning for gold they would shake and filter the dirt and debris away so that what was left was “gold”. In trading, we can borrow this concept to create our own ‘funnel’ to find not just financial products, but the *right* financial products to trade each day. # An important piece missing A new or struggling business may not be filtering for its customers correctly, leading to money and time wasted on the wrong advertising or product development. Similarly, an issue many traders face is that they are not trading the right products on a day-to-day basis. Their filter, or “funnel” for selecting products is too wide and shallow, and ultimately doesn’t allow the right setups (customers) trickle to the bottom. This leads to a number problems for the trader’s business, including: 1. Not having a clear system for finding the best setups, causing them to select products that don’t fit their trading business. 2. Choosing products that don’t give a repeatable pattern or “edge”. 3. Poor RR (risk to reward) ratios from products that do not have enough breadth of range, or “meat on the bone” Meaning you’re left with very small moves that make it more difficult to react, which leads to poor executions like late entries and early exits. A business lacking the consistency of attracting the right customers ceases to be a business very quickly. Likewise, without the right products to trade, the trader’s business cannot survive. Here’s where the concept of a “trading funnel” can help. # The funnel We can adapt the classic “sales funnel” to our needs as traders to help us filter for the best trading opportunities (think customers) each day. https://preview.redd.it/j7kctn2lucie1.png?width=1024&format=png&auto=webp&s=e6ec01097510bd43ffcb3fd4f6132ec2bda085ed **Here’s how I like to use a trading funnel:** (Feel free to adapt it to the needs of your individual trading business) **1. A business would start with creating “awareness” in their niche.** Businesses would start advertising, cold calling, posting, or direct messaging their specific customer-base to let them know about their product. As traders we can start with scanning in the right universe of products for our trading business. This is the first level of the funnel where you would cast a net that is very wide and shallow. There are thousands of financial products to choose from and tons of debate over what works best. What to trade is very subjective but I recommend to start where you’re curious. For me, I was drawn to large and midcap U.S. listed stocks. This was for a few reasons: 1. I’d always been curious about stocks and options. 2. I didn’t like the fat-tail risk in small caps (where if you short and there’s no liquidity to get out, you can blow up your account fairly easily) 3. I liked the scalability of large US stocks, where the runway to grow your trading business was very long. 4. I also like the leverage available through options and leveraged ETFs. You can also ask yourself what products and setups you’ve traded in the past that you felt were easy or almost “boring”— This is a great clue. *Boring and repeatable is where the money is made.* **2. Now that we’ve created “awareness”, let’s move down the funnel to the “consideration” stage:** Based on my ideal trading setup (customer), I first start by scanning for large and mid-cap stocks that are moving that morning; meaning they have gapped up or down and have things like a minimum market cap (>1B) and a high relative volume in the premarket (RVOL needs to be >1x) These things are a signal to me that there could be a setup worth “considering”. You can also read news headlines on sites like Barron’s or CNBC for “stocks making the biggest moves premarket”. This can be an additional filter to help weed out stocks with weak catalysts. (Upgrades and downgrades for example, if not meaningfully different to current price are typically weak catalysts.) I then run through my setup checklist to make sure the chart pattern, catalyst and intra day price action are all conducive to my needs. In doing so, you have now narrowed down the field of “customers” from tens of thousands, to four or five for “consideration”. **Bonus: Other variables for your “consideration” phase** If you primarily trade U.S. stocks, you need to be able to see the trees from the forest. Understanding the type of market we’re in helps to differentiate the setups we’re looking for. Setups work differently in certain market environments, and the sooner you can recognize a change in the overall market, the sooner you can adapt. And hopefully avoiding drawdowns from taking setups that may go against the current market sentiment. (I personally trade large and mid caps on the Nasdaq, so the Q’s are my go-to for market context.) For example: if I’m considering shorting AAPL after a gap down from earnings, yet the QQQ’s are in clear bullish conditions, I may not be looking for any outsized moves to the downside and realize my move will be a quicker pullback than if the market was ALSO in a clear downtrend. https://preview.redd.it/k7fnmdojvcie1.png?width=2559&format=png&auto=webp&s=f4043065f15b0d3e24f5e6efc6f8f4fae45c08c9 **3. You’ve now moved down to the “conversion” stage of the funnel** Your ideal “customers” have now been filtered down to a handful of potential ideas. This is where they “buy” and become a real part of your business that shows up on your balance sheet. More importantly, you’ve *filtered OUT* the wrong setups for your business. You’ve *avoided* potential loss. You’re now on firm footing to make progress today. And this is what every business wants: opportunity to make small steps forward each day! This step is where you “convert” one or two of your very few carefully selected trade ideas into action. You know what setup you want to see (customer), you know the price action you need to see (chart pattern), you know the breadth of move you’re expecting (price target) and you have your risk management parameters set (stop loss). All that’s left is execution and to “deliver” the product. Go ahead and make your entries and exits based on your signals and accept the results. **4. Loyalty** The final piece for any “sales funnel” is retaining those loyal customers. For a product or service business, this means continuing to serve or sell more to those customers who’ve already shown interest and have given positive results to the company’s bottom line. They would simply repeat the successful formula over and over. In the trader’s case, you’ve found the best setups (customers) for your trading business. It’s now time to rinse and repeat, and simply do more. Congratulations! You now have a real business. We also *act* just like any other business; we write down everything that works into a standard operating procedure, or what’s also known as your “trading process”. This allows for simple repeatability, which is how nearly every successful business operates (think McDonald’s). We then make small iterations to our process along the way in order to adapt to changing market conditions, and give ourselves the ability to scale by introducing better setups and opportunities (customers) while keeping the core process intact. # Guarding against pitfalls In using a “sales funnel” approach in your trading, you’re filtering for only the very best opportunities. Doing so guards against poor time and asset allocation which is everything in trading *and in business*. Remember, success isn’t about chasing every opportunity; it’s about focusing on the *right ones*, refining your approach, and executing with confidence. Hopefully implementing something like a trading funnel can help. So, take the time to build your trading funnel, fine-tune it, test it, and most importantly, trust it. Over time, this process will help you separate the noise from the gold, giving you the edge you need to grow and sustain your trading business.