The Power Of Simplicity
Or, why technical traders should try not to complicate matters.
In most of my modular training programs I try to show a method that is simple to read and simple to apply. To my mind, that is the way to go. There are many who get it and are happy to apply it and probably succeed. I know some do because I get a message back saying that they applied it successfully. But I also find that a good chunk of the attendees are disappointed that they did not get something more substantial. It is, like, they came expecting some high flaunting methods which they can apply and hope to look zany in front of their peers and friends and if they make some money with it, then it would be a bonus! I cannot but sympathize with such people.
In trading, one is always unsure. So the confidence to hold on to a position is so low that with every turn of the market, traders are forced to abandon ship, because they don’t know whether the trend is going to continue or reverse or stop. Success lies in being able to spot whether a trend is to continue or is it going to chop. That is the first skill to develop. The shorter the time your trade is alive, the less chance you get to discern this difference. Hence this skill has to be either honed to a high degree or the way it is applied has to be simplified. I prefer the latter and choose to show such methods in my seminars.
When it comes to trends and direction, there are two possibilities. Either it is there or it isn’t. Ability to know when a trend is NOT there is also quite critical. Because it decides the kind of trades that one has to take. The simplest way is to draw a Trendline. That’s right. The humble line technic that is among the first things that one learns at a TA-for-beginners seminar is probably one of your most potent weapons during trading! If the price keeps engaging the trendline (even if it has a slight directional bias), the type of trade that one will have to take will be different from when prices are clear of the trendline.
Obviously, it is a lot easier to play the market when prices are clear of the line. So a simple approach will be to choose stocks that are moving away from a trendline and avoid those that are constantly engaging a trendline! I know I have overstated the simplicity here but I trust you get the point! Over time, you get used to trading in the direction of the trend and that is a good habit to develop. And, once you have got this habit, then add in some bits of how to take some profits at pre- defined signals, move stops etc. These will improve your trade handling capabilities.
The core of success therefore remains at identifying the existence, strengthening and reversal of trends. All tools in TA are doing this in some manner or the other. The humble trendline does it in the simplest and most direct manner. It requires no time to apply and has no complications in reading the signals. While trading shorter time frames that is of major essence!