Staying Focused

Growing up in a farming valley with Amish, I frequented horse and buggies on nearly every road trip. The horses had blinders on to prevent them from getting spooked from passing vehicles. The Amish knew the roads were safe, but they also knew from experience that their horses’ fear would flare up and cause an overreaction accident if the horse had an opportunity to see in their periphery.

There is a lesson here for traders.

When one first starts trading, its rather apparent that everyone knows more about the markets than you do. At least … it appears that way anyway.

It makes sense to listen to the professionals who have been in the markets for years. You likely have respectful opinions of many traders and their analysis and approach to the markets, as I do. Learn as much as you can from them. Take their courses, go to their seminars, and become members of their online trading sites.

The more you can learn and incorporate into your own unique style of trading the better.

However, this all comes with a caveat: information overload. The best traders have a few technical indicators they rely on, time frames they use, and strategies and tactics they employ in their trading. Getting overloaded with screens (you only need one), technical indicators, or fundamental analysis creates confusion and hesitancy when trying to implement a trade.

If you’re like me, you love to hunt for breakout candidates on which to go long or short. Loading up your trading platform with too many indicators often leads to conflicting data.

There are three main types of indicators from which to choose: Trend following, turning point, and sentiment indicators.

Trend following indicators are trailing indicators telling you where the equity has been in the past. Moving averages (SMA/EMA), MACD, OBV, ADX, Accumulation/Distribution lines, etc., are examples of such.

Turning point indicators are coincident indicators, often called oscillators, that often precede major changes in price. They include stochastics, RSI, Force index, PPO, Rate of Change, and many other momentum indicators.

Sentiment indicators give insight into the broad-market psychology and where the markets are moving, overall. New High-New Low, Put/Call ratios, and Advance-Decline lines are some of these bullish or bearish breadth indicators.

As a trader, it is vital to become familiar with a few of the three main types of indicators and to look at every trade you make with those indicators. Know exactly what your indicator is telling you and how it is calculated. Gradually master each one, knowing its strengths and weaknesses.

Next, put in your ear plugs. It doesn’t matter a hoot what Harvard economists, hedge fund managers or bank analysts forecast. Trade your plan and no one else’s.

I often look at The Wall Street Journal outside trading hours to find trading opportunities ahead, but most often, it gives me insight into exiting trades. Once common insight becomes common knowledge and is published, it’s time to take profits. If I see my trade on CNBC or Bloomberg, it’s likely time to take profits.  

Stay focused on the road in front of you, and avoid irrelevant distractions that cause emotional fear and greed. Keep your blinders on to avoid getting spooked. Steady as she goes, Betsy.

Enuf said.