With all the craziness that is going on in the markets today, it is often good to look back and make sure we are not overcomplicating things. It is easy to make things more complicated so we need to look at what is really working for us and what is not. Many times new traders feel that the more indicators they can use the better traders they will be. This often times leads to a more confusing way to identify entry and exit points and can lead to trading unsuccessfully. In fact, if you look at many successful traders you may find that they only look at price action to determine when they should enter and when they should exit a trade. Now you don’t have to eliminate all of your indicators, just make sure that the indicators that you use are helping you in your decision to buy and sell. Today we will be looking at some ways we can simplify our trading process so that we can truly keep things simple.
When trading any trading system there are a few things in common to all of them. This list below can help us keep things simple by following the basic rules for developing a trading system.
Determine the trend
Determine support and resistance
Determine entry trigger
Determine exit trigger
Apply appropriate risk management rules
As we apply these things to our trading system, we will be focusing in on those things that can help us successfully trade the markets. Anything more than this just makes trading more complicated.
As we begin developing are trading system, the first thing we want to look at is how to determine the direction or the trend that is happening on the charts. This can be done in many ways and there are many indicators that can help us identify this direction. Using all of them will not be productive, so we need to identify a simple way to determine if the trend is moving up or down. We won’t go through all of the indicators, but consider using a moving average or just looking at the price action and seeing if it is moving higher or lower.
After identifying the trend, we will want to look at the areas of support and resistance. This can also be identified by looking at moving averages or looking in the past at the highs and lows made by the price. There are also many indicators, such as Fibonacci retracements and pivot points, that can help identify these areas. Again, make sure that you are using only what is needed to give you the information that you’re looking for.
Determining the entry trigger and the exit trigger can be done in many ways and with many indicators. Take some time to review the indicators you are using to make sure that they have a reason to be part of your trading rules. If they do not, then get rid of them! Try to get the most information with the fewest indicators so your charts can be easily read and simple to understand. As you try to simplify your trading process, you will find trading much more enjoyable, as well as successful.
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