The Power of Simplicity
It has been said the genius is the ability to make the complex simple. If ever there were a catch phrase to be a guide in your trading decisions, this would be the one.
The principle known as Occam's Razor is believed to be an appropriate consideration to a trader. "One should not increase beyond what is necessary, the number of entities required to achieve a solution," or, the simplest solution tends to be the best one.
Stated in another form, the explanation that requires the fewest assumptions has the higher probability of being the correct one. It is astounding to observe the volumes of irrelevant information individuals digest trying to create greater accuracy in their trading decisions. In fact, this quest for more information is one key reason individuals cannot consistently make effective and accurate trading decisions.
In the last two decades that I have been personally involved in the markets, I have learned there really are only three key elements one needs to consider when trading the FOREX.
- Time of day. The FOREX has very repetitive patterns and attributes based on the time of day you are trading.
- The price point a particular currency pair is trading at relative to the time of day.
- The size of the intra-day trading range.
Finding a trading set-up requires three simple steps.
- Determine the market condition--range- bound or momentum. Create a trading plan based on the condition.
- Have an entry strategy.
- Have an exit strategy.
That's it.
When trading, one wants to eliminate the unnecessary so that one may see the necessary.
However, there is a problem with this concept. Simple is no longer popular, yet complexity is. The perception in today's world is complexity creates greater accuracy and ey.iciency. The belief is complexity has a greater value because it cost more. If ten is good, 20 is better, and 30 is best. The current mindset is to want to buy what only is complex, or costs more. When making a decision, which is easier, considering 3 elements or 30? Accuracy comes with simplicity. In trading, accuracy equates to profit.
As Mark Twain once said " The trouble with the world is not that they no to little, but that they know so many things that ain't so". A time tested rule for success in any discipline- Keep it Simple.
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Technical analysis is the interpretation of price action through the use of charts and indicators. Indicators have a very specific place in trading. The majority of popular indicators do not perform consistently in volatile conditions. There is too much whipsaw or up and down price activity. Because of this, indicators are best used on larger time frames and trading in markets with low volatility.
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