“I can’t believe trading is so simple, why has it taken this long for me to figure that out?”

Sep 24 • Between the lines • 1877 Views • Comments Off on “I can’t believe trading is so simple, why has it taken this long for me to figure that out?”

cut-throat-razor-bloodOccam’s Razor suggests that the simplest explanation is usually the right one. Criminologists often use it to determine who’s the most likely suspect in a crime, such as a murder. Doctors ­also use Occam’s Razor every day in order to diagnose a patient’s illness when presented with a set of symptoms. It’s also used in a wide variety of ways as a means to cut a swathe through problems or situations, whilst discarding unnecessary elements. There are two parts that are considered the basis of Occam’s razor;

The Principle of Plurality – Plurality should not be posited without necessity

The Principle of Parsimony – It is pointless to do with more what is done with less

When selecting the right strategy for you as an individual and the concept of Occam’s Razor, I keep visualising how complicated we make trading when in reality, once you distillate the process of trading down to its key elements, it’s actually an incredibly simple process, or at least it should be…

We buy when price is going up, we sell when it goes down. But over a decade or so, since trading over the internet as a private individual became common place, we’ve added layers and layers of complication to what should be a simple process. So much so that (to use a common phrase in the UK language) traders can’t “see the wood for the trees”.

 

So why do we over complicate the process of trading?

I believe there’s a simple explanation to this, we can’t accept that trading can be this easy. By “easy” I don’t mean easy to take money out of the market, I mean the process by which we engage with the market.

“Surely we need a chart, that lights up like the 4th of July, with as many indicators on it as you can fit onto one chart? Surely we need everything to line up, like a stellar constellation in the night sky, before entering or exiting the market?”

Actually no, you don’t need the afore mentioned to enjoy trading success. You can keep your chart relatively clutter free, even naked and use price action only, or use one indicator from each of the four groups of the most ‘reliable’ indicators. But what is for sure is that the simpler you make your ‘on chart’ trading strategy, the more effective it’ll probably be. What’s more it’ll leave you more time to concentrate on the other two critical key issues of trading that we constantly refer to; your psyche and your money management, which possibly rank higher than your strategy, or trading technique.

 

The fallacy of matching your trading strategy to your personality

On the subject of particular strategies I’d never suggest that traders match their personality types to specific trading strategies. Given my belief that successful traders can trade any time frame and be; a scalper, day trader or swing trader, that’d be insincere of me. I’m suggesting that traders quite simply (that Occam’s Razor affect again) need to do the obvious and match a strategy (or strategies) to the amount of time they can dedicate to the market. I then began to think on the other obvious simple issues that we can get wrong as a trader and how simplifying them immediately could put us on the path to profitability that much quicker…

If you’re an intra-day or day trader, looking for price action to form in a certain pattern before pulling the trigger, you may need to consider treating trading as a full time occupation, unless you’re going to look for end of day patterns which can be notoriously difficult to spot. What is certain is that the strategy you choose, as your principle method to enter and exit the market, is committed to your simple bullet proof trading plan, a plan that you never breach and this plan should match your lifestyle and not your ‘personality’

Over the years I’ve tried to put together a comprehensive list, which a trader must follow  in order to become successful; in effect a ‘pathway’ to becoming consistently proficient and profitable. I’ve discovered that it’s impossible to compile a list given that no two individuals are the same, therefore no two individuals can interpret the markets and behave in identical robotic methods and follow the same path to some form of trader enlightenment, if it exists. Once again an indication that the simplest solution is often the best, and that we may be looking for ways to ‘crack’ a market code that doesn’t exist. Mind how you go with that razor’s edge…

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