Over the years, I have seen a trend develop with retail traders. When they begin trading, things are simplistic as they should be since everyone is just getting started. As learning and experience increase over time, complexity is a natural byproduct. Your trade setups become more complex, your strategies and systems become more complex, and your rituals and workflows become more complex. The result is that, for a season, profit goes up. However, the critical point here is "for a season." Complexity left unchecked will become an overwhelming monster, devouring your profits and self-confidence at the same time.
Typically, most traders have a place where they dominate the market. Whether you are selling covered calls, working with retracements, or a speculative volatility trader, there are two ways you can simplify your trading signals immediately: target fewer types of trades and reduce the requirements for your entries, targets, and stops.
The problem is when we learn something new; the temptation is to "add that to our tool belt." Unintentionally, what you end up with is a bloated tool belt that has so many options, indicators, and Fibonacci lines, they water down your core analysis. Our recommendation is to stick with no more than three supportive analysis techniques 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 of components: picking a trending stock, completing a Fibonacci Retracement, and making sure the Stochastic crosses up through twenty. Some of the best strategies are, by their very nature, simplistic.
I learned to trade long before we had access to powerful computers that could search over 7,000 stocks and ETFs nearly instantaneously and return potential trading candidates. So I have to admit, I was reluctant to get on the scanner bandwagon; however, times have changed. It is my sincere belief that traders who fail to effectively deploy a scanner are at a significant disadvantage to those that do.
Scanners allow you to choose where you want to do battle – forcing trades to come to you instead of you spending hours trying to find them. There may only be one or two stocks at any given time that meet your entry criteria, but it is next to impossible to find them amongst all the noise without a scanner. I suggest finding a scanner that has some excellent presets along with the ability for you to program your criteria and make those trades come to you.
Recently I was facilitating a live 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 one hundred pages long. Candidly, I was a little humbled at how much thought and work he put into his endeavor as it was an exercise that must have taken him several weeks to complete. I was thankful for the student, who so graciously shared their thinking but came to the conclusion it was far too complex to implement for myself.
Upon seeing the student in the class, I asked them about their trading plan was working out. Their response was perfect – the best of my memory, the quote was
Yes! I love that! Indeed, there is a correlation between simplicity and success, and I'm reminded of Ford saying, "You can have any color you want, so long as it's black!"
In closing, there are three things you need to effectively trades: ability, which is a combination of knowledge and capital, a strategy, and risk management. Let me encourage you to cut out the noise in your analysis and work with only the data you need to make your trading decision, as the rest is only a distraction. It is a simple as that.