A Traders Road Blog
by Scott Landers
The 5 Do’s of Charting Analysis 101:
1.) KISS…Keep It Super Simple:
The logic is tried and true in many areas of daily life. A back of the box store bought brownie mix 5 step recipe as an example. Traders always want to have more information than what is truly needed to succeed.
Belief by many that having more indicators will make them fail proof and reduce the odds of failure. Traders/ Investors alike eventually realize after numerous attempts at “Grail” systems that KISS and Perseverance is critical to success in this industry.
Which picture below is easier for you to analyze? The Left or Right?
2.) Use Indicators You Understand:
Many will spend lots of money to find the “best” indicators without grasping their intended design and use. Working with professional traders opened my eyes to this over a decade ago. They would explain to me how they were utilizing a simple and effective indicator.
Problem is they only understood half of its intended function and usage. Therefore, getting trapped in scenarios that did not pan out as expected and their belief turned to one of these indicators does not really work as designed when in reality it did work just fine.
3.) Use Less Indicators (Less is More):
Oh, so True. This is a simple one to prove on your own. I see it time and time again where a trader is forced to reduce the number of indicators down to only the ones they cannot truly do without.
It is as if they need a caffeine fix afterwards. Eventually, they see the light and the simplicity and the ease at which they are able to execute and make decisions in lighting speed. I call this concept “Naked Charting”.
Here is a quick & simple test:
How many indicators do you presently use? _______________
If you could only use 3 indicators what should they encompass? Can you answer?
4.) Avoid Piling On Indicators (More is Less):
I see system after system where a trader / investor has overloaded their brain with 30+ pieces of information to process. As a result, they wait for everything to align in hopes they will never lose money.
How Easy Is This Chart To Analyze?
In turn, they seldom find trades and learn the hard way they do not have a “Grail” system. It is easy to fall in the “Security Trap” of more information will help. Sadly, it leads to Analysis Paralysis and disappointment.
5.) Eliminate Analysis Paralysis:
Do You See The Ability To Simplify?
Analysis Paralysis can be defined as the inability to execute logical decisions based on an overload of visual information from excessive number of indicators.
Solution is a reduction of the number of indicators used. Use only logical and well understood indicators that allow for easy recipe like decisions. This eliminates wasted effort and energy on complex systems that offer minimal advantage over simplistic systems.
The trader’s advantage is the ability to analyze and execute trades in a very systematic way in real time without hesitation.
Thanks for reading this!
P.S. If You would like Help in:
Streamlining Your System
Eliminating Analysis Paralysis
Identifying Your Weakest Link in the System
It’s up to you now…
You have nothing to lose and everything to gain…