Clean your Charts

Discussion in 'The 'On Professionalism' Thread Series' started by jack, Aug 25, 2013.

  1. jack

    jack Administrator Staff Member

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    This is the fifth installment of the On Professionalism thread series.

    The previous installment thread can be found here:
    Purposeful Practice, sizing up, and why to Keep a Trading Journal

    The index and first installment can be found here:
    On Professionalism



    Clean your charts. Messy charts; messy mind.

    Indicators are great if they are part of your system, but if not, toss them out. There is simply too much information tossed at our brains by the market as it stands, so adding all sorts of indicators and new numbers (points of data) only makes things worse. Our brain, if not confused by conflicting information, just shuts out the extra info anyhow. You've probably already experienced this: Ever look back at a trade that went bad and realize you missed a signal that told you not to take the position? It was right in front of you but somehow you didn't see it when you took the trade? Ever find yourself scratching your head over how that even happened?

    You see, our brain does a great job at filtering out anything that doesn't support a positive outcome for us. It's just another way our mind deals with stress. We have a natural ("normal") way of creating a positive bias despite conflicting information. In other words, if we want to take a long position, with enough indicators and signal generators, our brains will find a reason to go long even if it's no the best trade to take. We will only put weight to the info that supports out bias.

    Worse yet, our minds also will search out for continued bias support even when the trade starts working against us: Ever been in a trade that doesn't start off so good and you immediately raise to a longer timeframe to see if it's worth holding onto? In the equities (stock) world, we call that "Turning a trade into an investment."

    Yeah, if the trade was wrong to begin with, turning it into a longer term trade isn't going to save you. It's better to just to cut your loss and move on. (If you have trouble with this, go back to the meditation and visualization installment of this thread series and repeat the exercises there.)

    Chart clutter beyond what's required for your system only gives us too much conflicting information. Again, our brain will simply ignore it should the information cause us pain. Yes, we will "see" it, but the indicator's importance will be dimmed in our unconscious.

    For starters: Strip your charts down to just price itself (candlesticks are a good base.) Only add a new indicator if it's absolutely required by your strategy. If your strategy requires many indicators, then consider reviewing the strategy to see what can be removed without affecting performance. The more simple, the better.

    Personally, I don't trade with many indicators at all, and often just have a single moving average to keep my chart company.

    Nearly all indicators are "lagging", meaning they are based on where price has been in the past, and thus only tell you what the dynamics of the market were the recent past.

    You must live in the moment as a trader, living on the hard right edge of your chart, remember that, so while indicators can be useful, you should do whatever you can to cut out the added noise they create. Too much noise, conflicting signals, and you'll end up in trading paralysis (feeling uncomfortable being long, short or even flat,) or just ignoring all but the info your bias wants to see.

    Part of living in the moment as a trader is accepting that the market can and will do anything it pleases despite what it's done recently. Think the Euro can't go any higher? It might. Think the dollar is overvalued? It might be... or it might continue to chug along gaining value. Indicators won't stop a currency, stock, or anything from going anywhere. Heck, the Euro has no idea what MACD is, nor does it care, it ONLY reacts to order flow and order flow isn't only looking at MACD.

    The concept of "overbought" and "oversold" are not understood by price. Price does not care about them. Price will continue to indicate "overbought/sold" on some indicators so long as orders keep flowing in to drive it.

    When ever you get excited about some new whizbang indicator that you don't even understand the math behind it yet want to subject your hard earned capital to it's wrath, think of this:

    [​IMG]

    Don't be this dog.



    The next installment in the On Professionalism thread series can be found here:

    Support and Guidance for Tribal Minds - Part 1
     
  2. Skipper

    Skipper Demo trader - Learning everyday

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    "Turning a trade into an investment." :count:
    Cant say it any better :lawl:

    Well, I was in a trade to day and was looking at 1h chart, but just to monitor how things are going, but I could see my self doing this too.
     
  3. jack

    jack Administrator Staff Member

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    It's normal to think this way, since doing so is just another way to avoid a loss (loss aversion is both a human 'gatherer' type instinct, and a major killer of aspiring traders.) And you know.... normal doesn't work. :p
     

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