Could you explain your stock or option trading strategy to a child?
If you shared your chart trade set up with a child could she understand what you see?
Are your rules simple enough for a child to understand?
It is in the simplest things that understanding is born and is able to flourish. The same applies to your trading methodology. The very best traders have a very simple routine that they follow again and again, very rarely making changes to what works.
There are just too many variables in the market and too many different ways to trade for you to find THE way to trade. All you can do is find YOUR OWN WAY TO TRADE. Mark Douglas, in his classic book, Trading in the Zone, says “no matter how much you learn about the market’s behavior, no matter how brilliant an analyst you become, you will never learn enough to anticipate every possible way that the market can make you wrong or cause you to lose money” (13-14). If you try then you are most likely suffering from analysis paralysis, which is simply allowing your analysis to overwhelm your decision making process.
There are several exercises you can do to help overcome the subconscious need to know everything (which cannot be known):
1. Share your trade set up (your edge) with a child or your own child and see if she understands what you see when you make a decision to enter a trade. I have a clear visual representation (CROSSHAIRS) of what my entry and exit is. My children could draw it with a crayon if I asked them too.
2. Write down your rules. Your rules should be so simple and so concise that you could write them down with a pencil or pen on a very small piece of paper or index card. This does not mean you only have one edge but that each edge has a simple set of rules to follow.
3. Practice just like a child who knows nothing about the sport she’s practicing. Eventually she will figure out what works for her. Practice trade everything but your edge and see how many work and how many do not. You will quickly find out how little you can ever really know about the markets. With every move in the market someone is making money with an edge and someone is losing money with an edge.
THE CROSSHAIRS TRADER trades based on the premise that the very best traders, the traders who make money on a consistent basis, are the ones who know that the markets cannot be figured out by looking at every possible variable. Instead, the best traders trade by rules that are really very simple to understand; so simple that a child could do it.
“A truly great man never puts away the simplicity of a child.” Chinese Proverb.
TRADING IS WAR. PREPARE YOUR WEAPONS.
