Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
How to Keep Trading Simple
09/10/2014 6:00 am EST
John Hoagland of TopStepTrader.com shares a list of tips to help novice traders simplify their trading and a list of the benefits they stand to gain once they begin incorporating said tips into everyday trading practices.
Keeping it simple
“If you can’t explain it to a six year old, you don’t understand it yourself.”—Albert Einstein
We are all faced with a common problem: we have too many choices and too much information. Perpetuated by the ever increasing speed of technology, traders are faced with more information, ideas, news, advertising, and persuasion than the mind can absorb and interpret. In the trading arena, not only do we have all this information, we have hundreds of tools to choose from to help us with our trading decisions.
I have seen many traders try to use too many tools and look for a confluence in the perceived signals generated by these tools. The more tools they use, the harder it becomes to make a decision. You probably have heard the expression "paralysis by analysis."
You have also probably heard the expression "KISS: Keep It Simple Stupid.” This expression is credited to Kelly Johnson, lead engineer at the Lockheed Skunk Works, among others. It is not to imply that someone is stupid, but that the simplest solution is often the best. Professional traders everywhere will agree with this. It is very easy to assume that more information must be better, but this is one of the paradoxes of trading, of which there are many. It has been my experience that the discretionary trader who masters one or two methods of organizing market information is the most successful, and the happiest. They experience much less internal conflict with their decisions, keeping much more of their energy focused on trading and making good, intuitive decisions.
- Remain humble. It doesn't take a genius to be a successful trader.
- Remain humble. When you start to see better results, it's not because you are a genius. It is the simplification of your process that is working.
- Stay diligent in your work. Continue to do your analysis and journal the same ways you have been.
- Define the most basic triggers for your trades and prioritize them according to importance for each perceived market state.
- Don't expect miracles, there will still be losses.
- When you don't have a trade idea, stay out.
- Keep your expectations reasonable.
You may notice that I am not naming any specific charts or tools. Price charts can be very helpful, just remember that everything they tell you has already happened. Deciding on your tool of choice should be carefully researched and tested, even matched to you personality and learning tendencies. For example, some people are better visual learners. Pattern recognition or Market Profile might be the tool for them. The statistician may prefer pivot and support and resistance numbers. The point is that you need to find the right tool for you.
How you will benefit from keeping things simple:
- You will be able to make decisions faster.
- You will be able to solve problems faster.
- Your intuition will increase at a faster pace.
- You will expend less energy.
- You will have less internal conflict regarding trades.
- You will accomplish things you never thought you would.
Keeping things simple may help you accomplish your goals, however it can't manage your emotions. It can help you manage your actions. We are all still susceptible to the same self-victimizing behavior and we need to be aware of it. Having a simple trading strategy doesn't make it any harder to manufacture trade ideas out of the emotions we all feel. Simplifying your trading can help you succeed as I have seen it help many traders improve their trading and reach levels of consistency and success they never thought they could reach.
By John Hoagland of TopStepTrader.com
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