We all like to think we’re smart and above average traders and investors. Well, by definition half of us are below average. We don’t know who is above average or below average (Sorry, your MBA doesn’t mean you’re an above average market operator).
All we can do is assume we’re below average. The easiest way to protect against us being below average is dumbing our analysis and decision making process down.
As it turns out, dumbing down your analysis has its advantages. Let’s look at charting tools.
Talking with fellow experienced traders and chartists, our conversations about charting styles go something like this
“When I first started charting, my charts just had the standard presets” “Yep”
“Then I learned about indicators and wanted to try them out, my charts started to look like a mess” “Me too”
“And now my charts are basically back to the standard presets” “Haha right, funny isn’t it”
After years of screwing around and looking for edges in indicators, many chartists and traders find themselves right back at square one…by choice.
It’s not that things like Bollinger Bands, ADX, Volume by Price and Ichimoku clouds aren’t useful tools. They all serve a certain purpose and are useful in certain ways. The problem is having all of that shit on your chart at one time makes it hard to have clear view. It’s information overload. On chart #2, can you really even tell the opening and close price 2 periods ago?
If you’re making a trading or investing decision, it’s a quick answer. Either you’re buying here, selling here or doing nothing. There’s no room for ‘I like the market, but indicator XYZ is suggesting…’ Excess information is really unnecessary because we already know the future is uncertain.
One other thing worth mentioning is how these standard chart presets are valuable. Some say technical analysis is a self-fulfilling prophecy. That’s an aggressive statement, but chart moving average presets are one area where that is true. These presets are simple rules of thumb that provide useful information to traders and investors. It’s a helluva phenomenon.
Don’t be afraid to say to hell with the fancy indicators. Save them for the talentless asset gatherers and ‘trading coaches’. We’re not trying to sell flash, we’re trying to bring the hammer and make money.
Trade ’em Well
For inquiries on premium research for both individual investors and professionals, contact: Aaron@NorthStarTA.com