Trading is dealing with uncertainty. Most people find this the hardest part. The future or your money is at stake and this can make us restless. To feel safe many budding Forex traders surround themselves with a cornucopia of technical indicators. Professionals do not. They’d rather keep it simple.
When you start trading, you will see chances and possibilities everywhere. Different markets, timeframes, systems and strategies, technical indicators…. It all starts with choices: Do you take a Simple Moving Average (SMA) or the Exponential EMA which considers recent price movement more heavily? Or maybe you decide to use the crossover of a short and long MA? If you want to know if a pattern is breaking from a channel, you will use the Bollinger Bands. And it might be useful to use a RSI to determine if the underlying value is ‘overbought’ or ‘oversold’. Maybe you should also include an ATR to monitor the volatility.
Before you know it you pick the indicator which best suits what you think is a trading chance. After a crash course in indicators your whole platform is full of colourful lines which indicate different things. And you are trying to make sense of it all. Before you know it you pick the indicator which best suits what you think is a trading chance. And it might change tomorrow. Or you just don’t know what is going on anymore… Any consistency has gone out the window, and this, for most traders, is their downfall. An added disadvantage is that the more variables (such as indicators) you use, the less robust your system usually becomes. A simple system usually means you can trade more markets.
When it comes down to complexity most big traders have 1 thing in common: They keep it simple. They make a clear choice, understand what they are doing and stick to their strategy. Thanks to their discipline they stick to the simple rules and stay successful. Big mechanical traders sometimes trade the same systems for decades, systems which can be written out on a napkin. And you can be certain there is no plate of indicator spaghetti to muddle it up.
Keep it simple (stupid!).
Our advice to the collectors of indicators and traders who go through systems and rules as if it’s nothing: Apply the Kiss-principle. Keep It Simple (Stupid!). Pick an approach, maybe pick an indicator or two (you don’t have to) and keep it neat and tidy. Concentrate on properly executing your strategy; this will keep you busy enough. Don’t get caught up in all the nice traders-toys around and avoid constantly trying something new. Make a plan, stick to it and keep it simple.
In the next chapter we will look at the psychology of trading and reveal some of the ‘demons’ faced by many traders. We will also be asking a few probing questions. By answering those questions you will get a clearer insight into yourself and grow stronger. We will also put forward a few questions to test your knowledge as well as some exercises. Have a look at how you think.
From: The Power of Mindset Trading
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