Many traders who are starting out correlate information overload with the ability to outsmart others.
However, having all the bells and whistles on your chart can actually be detrimental to your trading strategy.
Likewise, thinking too much about a situation, looking too much at a chart, and, of course, trading too much will is likely going to have the same effect.
Whether you are a seasoned investor or still learning the ropes, you have probably established that trading isn’t. However, the process itself should not be complicated, but rather simple, and effective.
So, let’s make it easier, shall we?
Step #1: It’s time to get all that clutter off your charts
We get it: You want to be ahead. You want the probabilities in your favor.
The fact is: You don’t need a complicated approach. You need to use what suits you.
Technical analysis products and tools will have you believe that the more elements a trader uses, the better his assessment of the market and his performance will be.
This could not be farther from the truth and can be damaging to your portfolio.
Adding too many charting tools, oscillators, and indicators, however, might make your charts look cool, but you will hardly ever get some sort of secret insight from them, specially if you are counting on finding something other people might not be aware of.
There are many traders out there, old and new alike, who haven’t figured out that indicators can often turn out to be contradictory by the way they operate.
You need synergy and have your indicators complementing each other, not the other way around because if you don’t, you will only be making your charts chaotic and will most likely worsen your decision-making processes.
If you are constantly met with conflicting signals, and unable to filter out bad signals, you will simply never have everything just line up, identify a correct trading signal, and achieve a clear opportunity to trade.
Finding the right indicators is only achievable through proper testing.
Step #2: Don’t overcomplicate things
Drawing your support and resistance levels on your chart is a vital skill and can make or break any trading strategy.
Surprisingly, there are still too many traders who mess their support and resistance plotting.
Price charts will have many data points to pick and choose from, which, in turn, make it possible to approach them and finding levels with different methods.
To avoid mishaps and getting lost on your own analysis, consider aiming at three things:
1.Keeping things simple
2.Keeping things logical
3.Maintain clarity
Remember that adding unimportant levels can and will ruin a clean analysis as you will only going to make reading the charts a lot harder for yourself.
Step #3: Reduce the noise
You’ve gone through the clutter. You’ve kept things simple.
It might be time to consider using higher timeframes.
It’s not that lower time frames aren’t effective; it’s about filtering out the “noise”.
By setting yourself with a higher timeframe will get you a clearer picture of what is really happening in the market as you will dissipate erratic market noise which frequently happens on lower time frames.
The 4 hour and the daily charts make room for a lot of trading opportunities which require much less mental energy, thus making the way you spend your time much more efficient and effective.
Remember that trading is a marathon, not a sprint.
You are aiming at consistently winning, day after day, so don’t start writing checks your body and your mind won’t be able to pay in the future.
By setting yourself with a higher timeframe you are guaranteed to become a more objective trader as you will not over-analyze the market and spend time trying to find signals on every single time frame.
Sure, you might miss some opportunities, but you’ll save up your energy which is most important when thinking long term.
This leads us to the final step.
Step #4: Don’t try to force things
High frequency trading does not correlate with making money.
As such, you should recognize that time away from your trading screens actually counts as a very valuable part of your trading routine and overall plan.
Consequently, you will want to develop a trading routine and learn to respect it.
Check the markets each day for a set number of times and at close. Run everything through your trading plan and if you find that no trading opportunity presented itself throughout the day, there is absolutely nothing wrong with walking away.
The market will always be there tomorrow.
Sitting in front of your screen for hours while attempting to force a trading set up might end badly.
Wrapping up
As Jules Verne once wrote in his novel Around the World in Eighty Days: “A well-used minimum suffices for everything.”
Sometimes less is more and there will be times in which doing less will be the most profitable course of action.
It is no surprise that successful traders spend a lot of their time studying the markets and waiting for the perfect opportunity to line up, instead of trading non-stop.
Strategy. Design. Implementation. Keep things simple and you’ll be on your way to success.