Why so Complicated?
I often find that people over-complicate their trading, especially if they have just started learning. They add loads of indicators and objects to their charts, until it looks like they’re flying the Starship Enterprise.
This realisation was shared by others too, which led to ‘naked trading’ and ‘price action trading’ becoming fashionable. Yet in many cases these still over complicated things; all it did was replace objects, fancy colours and flashy indicators - for fancy patterns and candle setups.
Of course some of these things really do work and I wouldn’t sit here knocking them, because there are many good traders using these approaches. But I have a simple tip which you can take with any approach to trading and it will transform the way you build your strategy. It won’t make you profitable on its own (you need to learn great tools for that first), but it will certainly improve your chances.
A Logical Solution
So the trick is: make the strategy logical! (simple but effective). If it makes sense then you can consider it; if it doesn’t make logical sense, no matter how well it looks like it’s working - get rid of it!
This will allow you to take the best parts of any approach, since illogical approaches, not matter how flashy and impressive, tend to fail over the long-term.
Essentially the financial markets are just giving you information like any other market would, so you need to view the information with the correct perspective rather than waiting for magical levels like ‘overbought’, ‘oversold’, ‘breakout’ etc. without understanding the underlying logic of why that may occur.
You get to see price and how the market reacts to that price i.e. how much volume, how quickly it moves, how far it moves to get there etc. So consider these aspects logically, consider what it means and therefore make your conclusions for what movements happen next.
For instance, imagine a fruit market and how you would make decisions about the price of your apples based on supply and demand and various other characteristics of the buying crowd i.e. speed and volume of purchases at particular prices. If the strategy you’re following fits what you would expect from a logical point of view, you may be onto a winner.