Are You Frustrated With Your Trading?

| November 4, 2009 | 0 Comments

This last weekend brought back some great memories.  Do you remember the days of trick or treating when you were a kid?  Roaming the streets on Halloween in some ridiculous costume.  Of course, you thought it was the coolest thing ever.

I loved dressing up as a “Ghost Buster”.

Dork you say?  Yeah, I know.  My wife reminds me all the time.

The memories are quite vivid.  My friends and I went house to house in a never ending quest for candy.  Ending the night, we would poor our loot on the kitchen floor.  Every candy imaginable was there!

Instead of sticking with just one or two of my favorite candies, I devoured them all.  They all had such huge promise.  I couldn’t pass one by without giving it a try.  The following days would be a blur of sugar highs and an upset stomach.

Just like Halloween candy, there are many technical indicators with huge promise…

The technical indicators traders use number in the hundreds.  There’s practically an indicator for everything.  There’s a measure for momentum, trendiness, money flow, relative strength, and the list goes on and on.

We also have tools like pitchforks, Fibonacci numbers, oscillators, bands, and waves, just to name a few.

Each indicator on its own serves a purpose and can assist you in your trading.

But many traders think they have to use multiple indicators.  Some traders use 5, 10 or more!  By adding multiple indicators, they think they can get absolute confirmation of their trades.  They think there’s a “magic mixture” of multiple indicators guaranteeing them profits.

They use so many indicators that their computer screens look as if they’re about to launch the space shuttle into orbit.

The truth is they want the indicators to give them certainty in their trades.

Mark Douglas, the great trading author said it perfectly, “most traders look for certainty where there is none.”

Using multiple indicators can lead to trading confusion…

Do you have a hard time pulling the trigger when you enter trades?  It could be that you’re looking at too many indicators.  By using multiple indicators in trying to confirm a perfect trade, you’ll end with what’s called “Paralysis by Analysis”.

This is a common problem with a lot of traders.

You bog yourself down in technical analysis.  You become confused.  You get frustrated.  You just can’t seem to make up your mind when to enter a trade.

The bottom line is, no amount of analysis (technical or fundamental) will give you 100% certainty in your trading.  It’s not possible.

Here’s the key to using technical analysis effectively…

Use technical analysis as simply as possible.

There’s an old adage that goes something like this… ”Keep it simple, stupid!”

Use one or two indicators MAX.  And learn to use them really well.  Once you get comfortable with these indicators, you’ll start seeing better signals.  Your trading will improve.

You’ll eventually get to where you have an edge.

Once you have an edge, exploit it over and over and over again.  Control your downside risk and let your profits run as far as possible.  Successful trading is that simple.

Technical analysis is a great way to find low risk trading ideas with high reward.  If you use it correctly, technical analysis can greatly assist you in reaching your trading goals.

Technical analysis has some great tools.  Use them in your trading.  But realize the limitations and don’t let too much information confuse you.  It can give a short term sugar high but leave you with an upset stomach.

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Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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