Simplicity in Trading
|April 12th, 2010, 07:16 PM||#1 (permalink)|
NY + NY/USA
Futures Experience: Advanced
Broker/Data: Optimus Futures- Rithmic
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Posts: 236 since Nov 2009
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Simplicity in Trading
Often during the course of one's journey toward becoming a successful trader, we come to a point where we assume that we have inferior charts, or inferior tools, or inferior information that is causing us to trade poorly and lose money. I came to this point, you will probably come to this point if you have not already.
This assumption arises, many times, when we start to compare ourselves to other traders who we see seem to make gobs of money, have strings of 20 or more back to back winning trades, and take small loses.
We look at those traders and think ‘if only I had their tools, their charts then I would be able to do what they do’. Nothing is further from the truth. The simplest answer, and the one most new traders have difficulty accepting, is that trading successfully is not in the charts, nor in the indicators, not in the oscillators or any bing bong red dot blue dot software no matter how much money it costs. As a society, we have been convinced that things that cost a lot must be better; therefore they must work better and make us better traders.
That premise is completely incorrect. For myself, in my wood shop, I have about 10 very good hammers, and many other woodworking tools. I have my favorite hammer, and it feels just right, has great balance and when I swing that hammer, it really drives home the nail. However, it cannot build me a table worth spit. It can’t even drive a nail home without me. I would love it to. It would save me a lot of effort. But, guess what. No voodoo in the world is going to make that hammer do the work for me.
That is just the way it is in trading. The oscillator will not say do the trade. The indicator, trigger or filter will not successfully trade for you. Nothing will. Only you, the trader can successfully trade. Having good tools will only help.
What I consider good tools are the ones that give you the most confidence in their signals. This confidence is only developed through screen time use of your tools.
It takes time, sometimes lots of it, to fully understand what each trading trigger, filter, oscillator, and indicator is telling you; and how they relate to each other.
It takes time, lots of screen time, to be able to put the signals together, to test them, use them in real trading to build the confidence to first trust your indicator signal, and secondly, but most importantly, to trust your own judgment. Learning to understand the probability rating of the signals you recognize takes time.
It is like a very bad experience you once had that you have to get over. In the book – Trading in the Zone – there is a great explanation of how our experiences teach us. Some of those experiences add to our success, some take from it.
When you are a newbie trader, you will experience many unpleasant events. Your greatest hurdle is to not let those experiences teach you the wrong things. It is up to you to spend the time to understand your hammer, regardless of how many times you hit your thumb while aiming for the nail.
There are some really fancy trading indicators out there – thousands! Hundreds are in your trading platform for free. Why is that? You would think that the one that works the best is all you need. Well, guess what again. We are all different, with different temperaments and thoughts. The hammer that works for me may not work for you. As a matter of fact, it probably didn’t work for me either in the beginning. It may have taken me months of using it before I got the swing of it. So, now you see the table I built and if you do not understand about woodworking, you will ask me – what hammer did you use, and where can a buy it.
So, the best answer I can give you is that you have your own journey to travel toward becoming a successful trader. The best tools are the ones that fit your personality the best. I consider macd, stochastic, moving averages, trend lines, trend bands, volume and price indicators, and understanding of fib re-tracements and the dynamics of the market place as the best tools a trader can use. Did I just mention all the tools? No, I forgot one. Before you read further please say to yourself what that best trading tool is. Got your answer?
They are all you need in the beginning, and in many cases all you will ever need. Once you have mastered them, and you will know when that is, because your bank account will tell you, then by all means go out and play with fancier sophisticated indicators. Be my guest. I think you are wasting your time. But, then, I was told the exact same thing myself, and I didn’t listen. It cost me thousands and thousands of dollars to learn what I have just passed on to you.
The best charts I have ever seen (and I only know this now) are the simplest. They are things of beauty because I now know that the answer was not in the chart. It was in the trader who used those simplest charts to become a great trader. One of the best exercises I ever did was to use a pencil, a ruler, a calculator, and paper charts of different time frames to do daily analysis. My mentor made me do this, over and over and over until I was successfully declaring trades.
Here is a list of what I consider as the best exercises I have ever done and still do:
1 - Bar by Bar chart analysis, every night for months on end. Advance the chart 1 bar at a time and make a decision. Buy, sell, hold, get out.
2 - Acid test - Trade a SIM account with $5k (NO CHEATING) 1 contract until you have doubled the account. For each $1k earned, you may add 1 contract. NO CHEATING, NO CHEATING! If you blow it out, then reassess you trading.
3 - Keep a detailed trade journal. It is more important to describe your feelings at the time of the trade, then the actual outcome.
In my opinion, the best step any new trader can take is to find a mentor. Rather than spend a fortune on indicator tools, spend it on a successful trader’s personal time. Pick their brain, find out the kind of person they are while trading, get to know how they think while trading, and watch them trade. No tool, no chart will ever make up for the one on one looking over the shoulder approach to learning.
Oh, the best tool for trading is your brain.