Too Much Data Can Hurt Your Trading
Many traders spend too much time on charts and indicators, says Al Brooks, who explains how he found that a much simpler approach actually improved his performance.
Is it possible for a trader to use too much data? We’re talking about that today with Al Brooks. Al, you believe it’s possible to make successful trades using just one chart.
Absolutely. In fact, that’s all I do. I just look at a single five minute chart all day long. When I started trading 25 years ago, I was under the impression that you need multiple charts, multiple timeframes, all kinds of moving averages and oscillators and bends and I was losing money. That went on for several years and I decided that I had to start from the bottom and just begin with one chart. I picked the five minute chart. It could have been any chart and then my goal was to try to find a few trades a day on that one chart and then add indicators to that chart and what I discovered was if you look at a single chart. It doesn’t matter what the chart is. It could be based on volume. It could be a tick chart. It could be a five minute chart, a three minute chart, a fifteen minute chart. There are many trades a day on any one chart and if you just force yourself to carefully analyze one chart, you’re going to find plenty of trades and you don’t need the indicators and I discovered that I started making money and I was consistently making money and that’s what I’ve been doing ever since. Now I just try really really hard to sit patiently and wait for clear signals on a single chart and I don’t worry about all of the signals that I might be missing on all of the other charts.
Do you think it’s a case that we live in kind of a more is better world that people think they need to use more charts, more oscillators, more data, but maybe in fact it’s hurting their trading?
Well, I totally believe that’s the case. It’s analysis paralysis. People are always looking for someone to help them or something to help them. When they start out, everybody loses and you lose for a long time, probably years and so you get desperate and you start reaching out. You know, maybe if I do this or hire this tutor or go to this seminar or take this course or buy these books or add these indicators, I’ll make money. But the reality is that’s all excuses. All you need to make money is a single chart and you don’t need anything on it. You can just look at what the chart is telling you and you can make money.
So if people want to kind of slim down in their trading so to speak, what would be a good place to start?
I would pick one chart. I use the five minute chart and just look at it. Print it out every day and try to figure out where the best two or three reversals are, the best two or three pullbacks and trends are, and at the end of the day, I’m convinced that just about anybody can easily spot several very reliable high probability trades with good reward compared to risk and once they develop confidence that those trades occur every day, that’s all they need. So if they’re losing money, I would recommend starting with simplicity and they may discover that they don’t have to do anything else.