How simple is your trading process overall? Did you know that many traders choose to complicate their trading more so than simplifying it. It is a true flaw that many traders fall into and there are many reasons why we and many of us do it. Partly it is human nature. In this article and video I will focus on why it is so common.
First of all, I am not saying that everyone does this, just that many people fall into the belief that the more junk they put on their screen the more likely they will be right about a trade. The truth is the more stuff one puts on a chart the more likely they will get confused and be wrong about a trade. I firmly believe and like I said in many of my videos that I have brought out over the last few years is that keeping it simple in trading is always the best.
Above Video – Why Keeping Your Trading Simple is Very Important?
The Market is Not Complex..
Now, you maybe wondering why? Well, because the market really is not that complex, it is quite simple, it moves in three major ways, it trends, it respects major structure and it abides by price action. These three simple processes are simply all a trader needs to know. They do not need some complex stochastic cross formula or some complex macd cross formula or some moving line telling them the market is up. The chart can tell its complete story simply by looking at it and that is all you need overall. And that is the only skill set you need to know..
Why Do Many Try to Complicate?
Now, you maybe wondering why so many traders try to complicate their trading, well the reason being is they feel like trading is like other skills that we learn as humans, if they make it complicated then in theory they should be more successful. A dangerous concept really as like I said above, the market moves simply, so why would anyone want to make it more difficult for themselves? Well the answer seems to relate to other skills learned in life, the more we learn the more we get better right.? Right of wrong? Well, with most skills yes. With trading it is a little different, the skill set we need is more so a skill set of money management, a good strategy such as The Engulfing Trader and a understanding of how Trends function overall. Then lastly and most importantly, remembering that this overall is a probability business and like any other probability business understanding that we cannot be correct in each trade as part of that process, however we can make sure that the trades that are right do better than the trades that we are wrong about.
Fundamentals, Economic Calender Etc.
This is where it comes back to keeping it simple again, another aspect that some traders fall into is obsessing about fundamentals and ignoring technical’s. This is an extremely dangerous game as fundamentals do not necessarily effect market trends and it is technical’s and trends that keep markets going up or keep markets going down. However I will say and confirm if a fundamental aligns with technical’s and trend then that is a different story.
The Recent Gold Story
An example of the danger of fundamentals can be seen in recent progression of Gold. While many fundamental traders kept buying, real market price kept respecting the downtrend patterns on the charts over and over again. Many traders ignored these trending and structure patterns and believed they were right either way. Well, we all know what happened there, many traders got extremely burnt and a lot lost a lot of money. In fact some Gold traders lost their fortune in the recent downtrend crash that happened on that market.
In hindsight, we could all say why did they not look at technical’s? This is a very good point.. Well, I think we all know the answer here, you see the market is always right, however because these fundamental traders thought they had an edge in the market they kept buying. They thought they were right and the market was wrong. Well, hopefully a hard lesson learned on this one for those people.
Image Above – Gold Showing signs of weakness. To see in enlarged view click here.
Keep It Simple
Well, I think you get my point here, many traders spend hours and hours, days in fact sometimes ridiculous amounts of time researching this and that or applying gosh knows what to their charts to get an edge but in the end it usually always ends the same, keep it simple, keep it real and keep it profitable and learn the skill set as a simple approach as I suggested above.
That is all anyone needs to know, the market repeats itself often and all a trader needs to do is look at those repetitions such as major structure ( The Engulfing Trader as an Example ) and Trends and apply a strategy to that knowledge.
You see, here is the thing, the market kept saying for years over and over prices were going lower, in fact Gold was in a downward play for years. People were too busy learning aspects about that market that they thought they had an advantage with, but did they? The truth is a young kid with basic trend and major structure knowledge and having no complex formulas could of out performed CEO’s and all these hedge fund managers that thought they were right on this one just by looking at a simple price chart and looking at what exactly the market is saying right now and not what the news or some economic calender is suggesting.
Once again everyone, happy trading, keep it simple, keep to what works and speak again soon..