Simple and Wise trading
Today I want to tell you about a very interesting process I have gone through since I started trading. About the illusion and expectations with which I started, the amount of knowledge that I began to accumulate and how this affected me when making better trading decisions and finally, the way to “unlearn”, understand and simplify my operation to start feeling noticeable improvements.
I want to tell you what in my opinion is trading in a simple and wise way, and I will try to expose some keys to achieve it.
So let’s get down to business.
MAKING MY LIFE DIFFICULT
When I become aware of the existence of something new to me and I like it, I start looking for a lot of information. I look for blogs, articles, Youtube videos, social media references and everything I can.
I look for different positions on the subject.
When there is a situation that generates controversy, the first thing I do is try to find out all the possible positions. Points of view from different angles that help me to get a general idea and then I do come up with my own meaning.
This approach to life has brought me many benefits throughout my life because in one way or another, it has helped me to make more balanced decisions. It has prevented me from judging by some bias of perception.
But not in trading.
At one point in my process I started researching the best indicators, the best strategies, the best trainers, the best books.
That moving averages supporting the price and with a clear trend are the best strategy.
That the volume depending on the candlestick formation will determine a market turn.
That the “Volume Profile” is the panacea in identifying supply and demand zones.
That the Bollinger Bands define how far the price can go.
That…
That…
And I could go on.
I literally filled myself with as much information as I could because I have always believed that knowledge is power. That if I study hard and know everything I can know, I will do better.
But that hasn’t been the case. In trading, as in some other situations in life, it has not been like that.
Because the more I knew, the more I was looking for confirmation to enter a trade. The more I knew, the angrier I got when I had a stop. The more I knew, the harder it was for me to recognise where I was going wrong. The more I knew, the bigger my ego became in front of the market.
But there is no economic or emotional capital that can withstand so many stops or broken accounts; that can withstand the passage of time and the increasing frustration of not achieving results; that can withstand the anxiety generated by the expectations I had when I wanted to make a living from trading.
That is how I started again, trying to “unlearn” as much as I could. First I studied the market from its purest form, the price. I began to understand that the simpler I make it, the better the understanding.
This has been a long and challenging process, but I have seen the results pay off. Price, volume and context or structure are the only things I take into account when entering a trade. I dedicated myself to study only one strategy and become a specialist in it, and although there is still a long way to go and still a lot to “unlearn”, the truth is that the goal is getting closer and closer.
At the beginning I used many indicators and I had to take into account several factors to consider taking a trade. If the MACD crossed the line strongly, if it diverged with the price, so much the better; if the price was far from the extremes of the Keltner Channel and the 20-period SMA was inclined towards my target. I took into account all the news and that if the pullback was very strong I should expect a deeper pullback, no longer at the 20 SMA but at the 80 SMA. If the run was very strong then I would not expect a deep pullback but at an 8 SMA.
This Blog entry is called Trading Simple and Wise because I definitely consider it to be the way to trade. As simple as you can; having clear parameters of context, entry and exit and just focus on that. Because sometimes it happens that we have so many variables to enter a trade that we spend looking for the perfect entry that rarely will come out, that entry in which the planets align.
I am going to list below what from my perspective and experience is simplifying trading. I still have a long way to go to make it even simpler, but I have come a long way.
- The main indicator is price.
- If you use volume, try to use only one indicator, because I used to use three different ways of identifying volume for accuracy.
- Become a specialist in one strategy or one parameter. The more types of inputs we have, the more complicated it becomes to do backtesting and become an expert.
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Have a Trading Plan. It should be so clear that there is almost no doubt.
- When to enter. When to exit. - What type of market to trade. - How I am going to manage the trade once I am in it. - How much risk I should take. - How many trades I can make. - What is the weekly and monthly risk? - Very important. Backtesting. Test the strategy at least one year before and see if it has a statistical advantage. Here you can review our post on the subject.
- Keep a Trading Journal where you can keep track of everything and keep statistics of your trades, your emotions, your comments, your successes and your mistakes. If you want this process to be automatic, I invite you to watch the following video.
- Patience. Give your strategy time, and give yourself time to get good at trading it. Give yourself time to become a professional trader.
Why does it become simple, because it becomes mechanical. Identify your entry pattern, stick to your trading plan and have patience to make you a better trader.
For me, that ‘s it.
And wise because it is definitely a process of self-knowledge, personally and as a trader. We start to know our emotions before, during and after trading; we learn patience, discipline, focus and to see beyond the result. We must learn to love the process and learn from it, to acquire habits that allow us to become better people and better traders.
Wise because we start to study our trading numbers. We analyse our trading every day, every week and every month. We realise what is our best trading state and our best timetable.
To give you a concrete example. My two best trading days are Tuesdays and Thursdays. The days I have the most losses are Mondays and Fridays.
The time when I make the most money is between 10am and 11am. The time when I have the most stops is at 9 a.m., i.e. at the opening.
The “mood” in which I have made the most profit is when I enter “aggressively”.
In short, we measure and know our numbers, we know ourselves better as traders and we make more informed decisions. Better decisions.
And so, one day and almost without realising it, we start to see results. The result of becoming a more and more professional trader.
Sebastián Orozco
Head of Partnerships
