Trading Tips

Keeping things simple in your trading

Beanieville posted Don’t Let All Those Technical Analysis Gurus Confuse You on Tuesday with the primary suggestion being that one should keep things simple by avoiding derivatives and leverage, and a secondary one to keep your analysis relatively simple. The title obviously only applies to that second point, but I think the general message that less complexity is better for most traders is a good one.

In particular, there’s a quote that goes:

“If you’ve been to some options or futures trading sites most of you probably feel like you don’t belong because of all apparently sophisticated analysis of the market, with so many trendlines and so many indicators you never heard of.”

I’m going to agree with the part about all the lines and indicators all over charts. I see it all the time, even among my professional colleagues. If that’s what works for them, fine, but I’m definitely not a fan. The charts I look at are simple, without all kinds of trendlines, Fibonacci retracement levels, Elliott Wave counts, oscilators and all that. To me the rest of it is clutter which serves no other purpose than to distract and obscure the important part – what prices are doing.

Now, having said that, the idea that options and futures traders are the main culprits here is just plain wrong. I’ve seen stock traders with some of the most intense charts ever. Market complexity does not necessarily equate to analysis complexity. It’s a personal thing for each individual trader. I’ll leave it to them to decide what’s best for them in the end.

The other contention made by Beanieville is that traders should avoid options and futures and leverage (which I presume would include forex as well). I’m mixed in this one.

On the one side, I’ve answered a lot of questions about leverage and margin from confused traders. For many folks it would be best to stick to simpler markets at first, until they have a solid grasp of things from that perspective before taking on leveraged trading.

That said, there are plenty of folks who quickly grasp futures and options and such. I have no problem with them starting in the perceived deep end of the pool, as long as they have a healthy appreciation for the risk side of the equation.

The bottom line for me is that different people are going to be best suited to trade different instruments. Keeping them from trading in that fashion virtually guarantess they perform below their potential.