Saturday, January 28, 2017

The advantages of simplicity when trading

In our day to day life, in almost any environment, we tend to make things more complicated than strictly necessary and this can significantly affect the outcome of our actions, although many times we do not realize it. Something similar happens in trading. There are traders who spend day and night in front of their computer, they try hundreds of strategies, they follow all the analyzes and signals that are, they load as many indicators they occur to them in the graphs of their platform of trading, Others, instead, look for the Maximum simplicity and try to obtain benefits with the smallest possible headaches.

What are the advantages of simplicity when trading?

1. Simple strategies are the easiest to follow and optimize

Most beginners start by studying the graphs and incorporate the more indicators better trying to get the infallible input signal. The indicators generally give information too late to detect these input signals. Some indicators may be useful to be used as confirmation of another signal that you have detected but many may not be helpful and the combination of them may give us false or often contradictory signals.

Many professional traders use only Japanese candlestick charts to make their trading decisions. The price, represented with those Japanese candles, can give you more reliable samples of the direction you will take in the future. In this sense you can try to learn to follow the price, to locate key levels of supports, resistances and strong signals that can show you a continuation or a change of trend.

The more variables you use in your trading system the more complex it becomes to follow and especially to optimize. If you test a simple system and it does not give you good results you can try to modify certain aspects and see if it improves or you can discard it and look for another one. But if you use a complex system it is much more complicated to modify anything or to identify what is working and what is not.

2. Entering the market only with strong input signals can help you avoid mistakes

It is not usually convenient to try to get into all the market movements. More movements are not necessarily equivalent to more profits but more risk and generally more losses. A common mistake of the novice trader is to want to open many positions so as not to miss opportunities to make a profit. If you are disciplined and do not enter the market if you do not give a strong input signal based on your strategy it is easier for you to avoid unnecessary mistakes and losing positions.

On many occasions you will see that there are no opportunities that meet your entry requirements. In this case it is preferable that you close your trading platform and reopen it the next day. You must know how to wait and not be self-deceived that the conditions of entry are given when the signal is really not strong.

If when you are analyzing a possible entry opportunity you see that you doubt much, think that you may be entering the process of self-deception provoked by greed to propel you to operate. By taking only a few strong entry signals you can get more benefits than entering the market more often, yet keep in mind that you are always going to have to deal with losing trades, it is part of the game and you must know how to properly handle both winning trades Like the losers.

3. Larger time frames reduce your stress when operating

Trading platforms allow you to work with different time frames (also known as time frames) that generally range from 1 minute to 1 month. Many traders believe that they can get more benefits if they work with the shorter time frames since they generally generate more trading opportunities in less time. It is true that more opportunities can be given in these shorter time frames but also many more false input signals are formed and the market in the short term has a much more random behavior.

Working with larger time frames, such as daily, weekly or monthly, can be much less stressful as it requires you spend much less time in front of your computer. You can limit yourself to analyze the graphs a couple of times a day to detect new trading opportunities and monitor the evolution of the positions you have open and do nothing else until the next day.

4. The permanent control of your positions can be counterproductive

If you have made the decision to enter the market based on a strong input signal and you have defined from the outset your stop loss and your take profit, you should not need to constantly monitor Your positions. Fear can cause you to prematurely close a position when you see that it is not advancing to your favor when it is possible to do so if you give it enough time or also to close a position on benefits prematurely for fear of losing them without reaching the initial goal.

In order to be able to Learn about Forex market from your successes and mistakes you should do your initial analysis and let the position close when you reach your profit objective or because the loss limit you defined has been exceeded. In this way, regardless of the outcome, you can analyze it, see if you have been wrong or if you have been successful, if you have properly placed your stop loss and take profit at the correct distance, It is much simpler and at the same time it is practically impossible to build and Improve your own trading system if you are making changes without control continuously.

1 comment:

  1. Simplicity is good as well as safe while trading because it you are new in the market and suddenly use complex trading style and strategies then it might be dangerous for your investment result. So at first use simple trading style so that you can control mistakes.
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