Lessons from the Pros

Specialty Skills

Simplicity is Arguably the Best Policy for Your Trading

“It looks a bit full but it’s going to work,” he thought as his limit order was being placed on the YM E-mini 5 minute chart. There was not much space for the chart to be exhibited, though, as there was a MACD indicator, an RSI, a Stochastic, an ATR and a Bollinger Band® prominently displayed. John liked to ensure that he had all of his bases covered when he did anything, especially trading.  Actually, it had occurred to him a few times that his chart was a bit cluttered; but, he commented to himself that it was important to have as much information as possible…right?    Even though he had heard that it is helpful to keep his charting simple, he felt that the indicators gave him an edge…which he much needed.  However, there was a fly in the ointment; and he found himself wondering why his win rate was so low even though he followed his strategies and aimed to cover all his bases.  He was confused and felt depressed because what John failed to understand was that he was obscuring his ability to “see” the most important information in the charts, the price action and the order flow.  After licking his wounds from losing much more than he should have with the strategies he was trading he went back to the fundamentals.  He took all of the “clutter” off his charts and started at the beginning.  He simplified his approach and began to “clarify” his thinking.

John was dealing with a common misconception that often robs traders of the ability to clearly determine their levels, which amounts to putting on too many indicators thinking that they are going to provide more and “better” information.  There is no doubt that more indicators will offer more information, but not necessarily better data.  One of the first things to remember is that all indicators are lagging.  In fact there is only one real-time indicator and that is “price.”  Now, am I saying that indicators are of no use?  Of course not, however, it is important to use them judiciously.  In most cases, they are best used with a specific plan and strategy where you are confirming overbought or oversold positions of the price action.  In this instance the indicators are simply verifying what the odds enhancers are presenting.

The other point here is that “simplicity” in your charting goes a long way towards being able to resonate with the movement of the price action and being able to check your levels.  If your chart real estate is being taken up by line upon line of indicators it becomes quite difficult to track the most important information.  When you have only the price action and perhaps a simple or exponential moving average or two on your charts, there is quietness about the chart that supports your ability to do what is in the best interests of your trade.  Additionally, it helps your ability to firstly determine and secondly to focus on what matters most.

Another point that supports using charts that are simple is that simplicity helps you to remain a bit more centered and grounded.  Cluttered charts promote fragmentation and frustration due to the over-abundance of data and the possibility of becoming overwhelmed by analysis paralysis. Analysis paralysis refers to the attempt to know “everything” that you can with a given instrument.  This is virtually impossible as there is an inordinate amount of minutia involved in any market as it spans news, reports, history and all manner of other information.

Many traders are attempting to find the magic bullet or the holy grail of trading which doesn’t exist.  Simplicity does not mean that you don’t need discipline.  Actually, your ability to keep commitments, plan the trade, trade the plan, and follow all of your rules is still a lion’s share of the process.  Of course, patience is another key in the process as you learn the intricacies of price as it relates to your Supply Zone and Demand Zone strategies.

Mastering your mental game is not only what you think but “how” you are thinking.  Simplicity of approach is a way to support your internal data functioning (thoughts, emotions and behaviors) by using a mechanical data method (the news, technical aspects, entries, targets, stops, etc.) that is free of overly complicated charting.  Simplicity is a way to critically determine the what-matters-most and your strategic position as you negotiate through your trading process.  Supporting your A-Game is at the top of the what-matters-most list.  But, just bringing your A-Game, your highest and best trader is not enough.  You must bring it and keep it there throughout your trading session.  Simplicity will afford you the edge in your trading.  These and other critical lessons are taught by Online Trading Academy; ask your Education Counselor for more information.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading.


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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