If you have a trading method that works, stick with it!
June 5, 2008
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John Forman - The Essentials of Trading author
An email came in yesterday from a guy named John that I thought would be worth sharing. It strikes me as being very representatiave of some things many traders are thinking and feeling.
I am mostly a momentum, intra-day trader. Like most folks, I have had good days and bad days. It is hard to say that I really have a set plan. I mostly try to find good momentum stocks with lots of volatility, and try to long and short the intra-day ranges, take quick profits (or losses), and move on. I guess that resembles a plan. I really don’t worry too much about resistance or support since my time frame is so narrow. I know I should learn more about longer term strategies, especially the several day to several week variety. Part of my problem is impatience and the need for some action. I know I should be more cerebral about my approach. I try to be aware of the trends, and I do look at some TA indicators, but my confidence in interpreting MACD, Stochastics, etc., is limited. What I do know is that a stock like FSLR is usually pretty volatile, and if you can sort of determine the trading range, you can ride up or down for a point or two with 100 shares, and still make some money. The trick is loss control which is very difficult with volatile stocks since you really can’t have tight stops as you will busted out all the time. Then, just when you think you know the roller coaster pattern, bam the stock goes off on a 5 point run against you. Not for the weak hands.
There are a couple of points I would make here.
First, John says he doesn’t worry about support and resistance, but it sounds like he really does. He talks about identifying ranges and trading them, which essentially means he’s trading against the support and resistance levels, whether he realizes it or not. Also, he talks about his timeframe being too narrow to worry about support and resistance, but there’s no such thing. It’s the fractal nature of technical analysis that support and resistance operates in all timeframes.
Second, if I were John I wouldn’t worry at all about indicators like MACD, Stochastics, etc. He has something that works for him. No need to muddle it up.
Believe it or not, indicators are not required for trading. They work fine for some people, but I personally don’t use them myself. I’m strictly a price action trader myself. I’ve looked at all the major indicators at one point or another and none of them really demonstrated any value to me, so one by one I left them behind. For my work I need to be able to speak to them, because my readers use them, but I don’t trade with them myself.
The advice I would offer up here is that simplicity is a good thing. We humans have a tendency to make things more and more complicated over time. If you have something which works for you, stick with it. The more experience you gain, the better you’ll be at applying your methods. There’s no real need to overlay this, or add that.
Having a working strategy and sticking to it are the major components of consistent trading. That should be the objective of all traders as it is from consistency that successful trading comes.
Here are some other posts which might interest you:
John,
I agree that, indicators being a derivative of price, which is, itself a lagging indicator of market action(a price print sonly AFTER a trade has occurred at that price) they are filters on price action. And, many successful traders have internalized the information that they used to derive from indicators, and so, no longer require them.
While fewer moving parts is a good thing, where many traders seem to fall down is in performance analysis. As you focus on in EOT, HOW is your trading perfomance over time affecting your equity curve?
Bottom line, if using good risk management and throwing darts at a newspaper is showing a 30% month-on-month gain over a large enough sample size, and shows good metrics, - all I want to know is where do you buy your darts?
Good Business management, Risk management, and Performance monitoring are an essential foundation for consistent, lasting success. The rest, as they say, is details.
Regards,
Stan H