I’ve heard it and seen it over and over. “This guy uses like 4 or 5 indicators and it sounds so good. He’s making it work.”Anyone can make an explanation sound so perfect your like wow this must be the real deal. It’s actually so far away from the truth. Trading is a simple game. Long gone are the days of earnings releases and news announcements. Now we are simply trading on human emotion. And of course, computers however that’s another topic. When it comes to looking at your charts it should be simple and clean. You shouldn’t be confusing yourself with the new holy grail of indicators and in the end, lose money anyway.
I’ve learned through my years of trading that the best way to trade is to keep it simple. There is no need to re-invent the wheel. The only indicators I use measure momentum and volume. These show me where the buying and selling pressure is and from a day trader’s standpoint, that is key. I don’t have my screen cluttered with Bollinger bands, simple moving averages or anything like that. It’s very clean. Volume will show you a few things. Inefficiencies in bigger volume which can occur from various things such as market maker manipulation to a huge buyer or seller coming in. Smaller volume will usually indicate accumulation or just slow and steady into or against a trend.
Momentum shows a variety of things as well. It will show you whether a strong trend is starting or whether it’s time to play a reversal trade when it’s losing steam. Since I am a contrarian trader I look for the reversal play. This is usually easy to spot. I look for massive overbought or oversold conditions. This is usually confirmed by volume which is always my secondary indicator. Using Mac D is a great tool to use in determining buying and selling pressure. It will show whether a particular investment vehicle is in a highly volatile state or just on a steady trend. Depending on what you trade this can or cannot be useful. I trade mainly futures and this tool has been so valuable to me in my day to day operations.
Now that we have to keep your chart clean out of the way. Let’s take a look at another aspect most people miss. Everyone wants to do everything well. How about doing one thing perfectly? I have traded almost everything and coming close to mastering futures has become my niche. It’s always good to focus on one thing and master it. You will see it and be consumed by it every day. You’ll learn the ins and outs and not only that. You will learn price action and understand why it does what it does. You will never fully understand the markets. No one will. There are days I still lose. The point is I retrace my steps and determine where I went wrong. Then, and only then can you understand how the market is working and how to minimize losses and understand the movements and how to capture them.
Lastly, keep a set of trading rules. Write it down and it keeps in front of you every day. The whole point is keeping it short and sweet. You have a strategy but do you actually know the rules? Because we all know that sometimes we force ourselves to deviate and break those rules. It happens to all of us. Look at your rules every day and force yourself to abide by them. When you forget this simple habit then you allow yourself to fall into a hole. One that is filled with bad trades, self-doubt and questioning each and every trade.
In the end, it’s all about simplicity. Know your rules, trade one thing and trade it well. And keep your charts clean and only use a few indicators that help you with your particular strategy. As they say sometimes when you do less, you get more. In trading that is actually true. Try these 3 habits I outlined and see what it does for you. It has made my trading career amazing.