There is a trend with retail traders. See if you can relate.
When they begin trading things are ultra-simplistic. They must be! After all, you are just getting started! The result is a lack of success. But would we expect any different? To think an ultra-simplistic beginner would achieve extraordinary results is like believing a baby is born ready to enter the workforce! Certainly not.
As learning and experience increase over time, complexity is a natural byproduct. Setups become more complex. Strategies and systems become more complex. Rituals and workflows become more complex. The result is that, for a season, profit goes up.
The key here is “for a season.” Complexity left unchecked becomes a monster, devouring profit and self-confidence at the same time.
Has the success of your account looked like the orange line in the graph above “Complexity vs. Success”? If so, you might want to take an honest look at whether your trading has become so complex that it is damaging your success.
#1 Simplify Your Signals.
There are two ways you can simplify your signals immediately:
Typically, most traders have a place where they DOMINATE in the market. Maybe you’re best at selling covered calls? Or perhaps it is trend trading with a market ETF like SPY. Maybe you love retracements, or maybe you’re purely a speculative volatility trader?
Each of these strategies has their own merits. The problem is when a relatively young trader attempts to do all of them at once! When we learn something new, the temptation is to “add that to our tool belt.” Unintentionally, what you end up with is a pretty stuffed tool belt!
My hunch is you have a favorite strategy that serves you well. Try sticking with that strategy for a while and see what happens to your equity curve.
The other way to simplify your signals is to reduce the requirements you place on yourself. Students are often shocked to find out that one of my favorite entries has only a couple components:
That’s it! Here is an example of how beautifully simple this strategy is!
#2 Simplify Your Search
I’ll admit – I was reluctant to get on the scanner bandwagon. I learned to trade long before we had powerful computers that could search over 7,000 stocks and ETFs nearly instantaneously and return potential trading candidates.
Not anymore! It is now my sincere belief that traders who are not effectively deploying a scanner are at a significant disadvantage. Scanners allow you to choose where you want to do battle – forcing trades to come to you and not vice versa. There may only be 1 or 2 stocks at any given time that meet your simplistic entry criteria we talked above. Without a scanner, it is nearly certain you will not find them.
I suggest finding a scanner that has some excellent presets along with the ability for you to program your personal criteria. After all, these are YOUR trades we’re identifying.
#3 Simplify Your Plan
You need three things to trade:
That’s it. Simple? I agree!
Recently I was facilitating a class and saw a long-time student that triggered a memory. This student had at one point handed me a printed copy of his trading plan. Without exaggeration, it was nearly 100 pages long. Candidly, I was a little humbled at how much thought he had put into it! No doubt, this was an exercise that took him several weeks to complete.
I poured over the document for several days and came to the conclusion that it was far too complex for me to follow personally. I was thankful the student so graciously shared their thinking, but it was not something I could adopt for myself.
Seeing the student in class, I asked them about their trading plan – was it the same as before? Their response was perfect – the best of my memory the quote was:
I’ve simplified it substantially and I’m doing better than ever!
YES! I love that! Indeed, there is a correlation between simplicity and success. I’m reminded of Ford saying “You can have any color you want, so long as it’s black!”
Simple. Successful. Profitable.
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