HalloWhen developing a trading system, people often tend to make it more complicated than it needs to be. And to my regret, I haven’t been any better in former days. How come that? After a couple of weeks, after I started trading, I began reading books and websites about technical analysis. There were plenty of chart patterns and indicators mentioned, and as indicators were easier for me to use, when it comes to identifying buy and sell signals, I tried many of them in backtests. One after another… RSI, MACD, Stochastics and some fancy indicators, too. And guess what – it worked very well. But by then, I didn’t know that I was over-optimizing the backtests to fit to a give timeframe. They performed well in the past, but were useless when it came to real trading – at least for me. As soon as I found out, what I was doing wrong, I was thinking that I only had to combine different indicators to filter out false signals. I have been using moving averages, RSI and stochastics to find signals and used ATR for setting stop loss points. Many signals were contrary and signals were rare – and not as successful as I hoped they would be. After a while, I have stopped reading books about technical analysis and started reading books from traders or interviews with traders. What I found out by reading this, was:
- There were about 40 different traders and 40 differents methods (technical and fundamental). Successful traders and successful methods so to say. There is not “the best system”.
- Many of the methods were very simple. They could explain their trading style in just a few sentences. Some used only one indicator, only trendlines, looking for a special pattern to occur or using no charts at all. But they all had one thing in common: they mastered their system to the excellence!
- What is very important is to find a system that fits to ones personality:
- Going with the trend or following a counter trend approach
- Trading in small or higher timeframes – looking for the big move or only for the next few pips
- Trading only technical, fundamental or a mixture of both
- But most important is not to only find a system that fits to your personality, but to stick to it. You have your rules? – Follow them. Each and every trade, each and every day. Without discipline you won’t last very long in this markets.
There is no need to make trading more complicated than it needs to be. It’s still hard enough to stick to the easiest system, because we all are only human and we all make mistakes. Be it, because of fear, of greed or any other reason. I once read that a successful trader said, that he could explain his trading system (profitable, of course) to a second person in detail, but this person would nonetheless not be able to become a successful trader. Trading is learning every day in every trade. So keep your trading system simple. Here’s a nice scene that illustrates this very well