Sometimes, I think I could have called my coaching business Simple Trading Systems, and not Easy Trading Systems.
Trading can be difficult at times. However, I have always believed that we are the ones that make it so. So often, simple systems work the best. The rules of trading ARE simple - act on the buy signal, size the trade to your chosen risk, act on the sell signal, and repeat the process.
Simple to say but at times difficult to do - so many thoughts get in the way.
I teach meditation classes at my local Zen Centre. I like quoting the composer Mozart, “Music is the silence between the notes” and to link that to the Zen philosophy that “Peace of mind is the silence between the thoughts”.
From a trading perspective, good trading is “silencing” the worrying mind between the buy and sell signal. If we want peace of mind from trading, we follow the process of “not thinking” too much about the What Ifs.
For example, look at the chart below of ISU. A stock mentioned in the news as it fell another 50% last week. Using the simple eBook trading system as an example, you can see two buys and two sells, represented by the blue and red dots. The stock signalled 52 week buys twice in the last 18 months. But both trades failed and the price finally fell away to be worth around just 51 cents compared to almost $1.80 when it was sold out by the system. Simple action to take - act on the sell signal - but not easy? Maybe not, because if you had just held the stock hoping for a turn-around, the emotional pain would certainly not have been easy. Who or what has created this emotional pain? You or the stock ISU?
Also, all this pain and confusion may have been compounded by you researching and analysing. For example, you may have read this analyst report I found just last week:
“Analysts had remained optimistic with an average 12-month price target of $1.84, according to Bloomberg, and 80 per cent of analysts surveyed holding "buy" recommendations”.
You may have also been doing this to your worried indecisive mind, applying Technical Analysis to the chart, looking for support lines, trend lines, Fibonacci retracements, Gann rules, volume indicators, pouring over all sorts of technical possibilities, etc.
Who or what is to blame? The Bloomberg analysts or your technical abilities, neither or something else? How much easier your trading life would be if you had just followed a simple system, sold ISU, ignored all the analysts, your technical stuff, the thoughts in your mind, the what ifs, and moved on to the next trade!
Last year I was in Japan and had a brief stay in a Zen monastery. The most striking thing about these incredible people was their simple and disciplined approach to everything. During one conversation I had with a Zen monk, he asked “why do you western people complicate things so much?”
If you are struggling with your trading, perhaps you could ask the same question, and look for an “easier” (simple) method. However, for many traders, it’s not the method that is the problem. As my ex-trading partner liked to say to me, “it’s not the driver causing the problems, it’s the nut behind the wheel”.
If you want to read more about Zen, click here and scroll to the bottom of the page to open the PDF file.