Lessons from the Pros

India Markets

Too Little Too Late

In the courses I teach on trading, my students are often amazed at how little I rely on technical indicators as I trade. They usually come to the class with the preconceived notion that trading must be difficult since so few people actually succeed at it. Most believe that you need to use intricate, labor-intensive analysis with many indicators to make money.

In reality, it is exactly the opposite!  Those indicators and complex strategies frequently prevent you from buying and selling at the correct areas and can cause you to lose money.  One student recently brought me an article from a major US investing newspaper.  The article was titled, “Study the Chart Action Before You Short.”  I completely agreed with the concept of the article.  I do use the charts for all of my trading decisions, but that is where the agreement ended.

The article was recommending the use of moving averages in order to enter into trades.  They were waiting for the averages to cross and then would buy or sell on a retest of the average by price.  While this may be a good way to enter into a trend that has already been established, it is going to get you into your trades extremely late.  Waiting for those signals will also cause you to miss many profitable trades at market turning points.

Take the market top in the Nifty that I had written about in my recent articles.  The turning points were easily identified from supply zones on the chart.  If you tried to apply the moving average strategy to the Nifty, you would have been shaken in and out all over.

nifty lagging MA

The same “too little too late” phenomenon is visible when looking at the chart of Reliance.  A trader who followed the Online Trading Academy strategy of buying on pullbacks to demand would have profited well.  But those chasing price and jumping in on moving averages would have lost greatly.

reliance ma late

So learn how to trade price itself and you will be well ahead of others who are using lagging indicators to trade.

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.