Don’t make trading harder than it is

One of the tenets of Buddhism is that life is hard. Of course you don’t have to be into that kind of stuff to already know that. However, we have this knack for finding ways to make it harder. We like to make things more complicated then what they are. It makes us feel better if we are doing something complex. Better yet, we gain the approval of our peers if it looks like we’re doing something that isn’t simple.

My best everyday example happens at your regular job. It’s no coincidence that the most competent person rarely moves up in the ranks. It isn’t because s/he isn’t doing what needs to be done. It’s simply because s/he can’t put on a show.

The person who get’s the promotion is the one that stays late the one time the boss stays late. The one that takes credit when things go well, but can accurately shift blame when things go wrong to the people that are his (okay assume i mean hers too) competition.  The person that can do the project on time, but at the same time makes his attempt to finish  an excel data entry assignment  look as though he has solved Beal’s Conjecture. If you get the job done, but make it look diffucult, you will look like a hard worker.

The skilled laborer doesn’t find merit in being dramatic about the job. He simply gets the job done. The problem is he makes it look too easy. So while he’s busy browsing the net because he has finished all of his tasks, and his supervisors have no more work to give him, he is looked at someone that is wasting company time. God forbid the people upstairs actually realize that maybe they should give this person something more up to standards with his abilities. Instead, they reward the actor, and do not acknowledge the actual worker.

Just another case of perception and reality working against each other. I pretty much fit the latter, and this is how I ended up day trading. In the markets it’s not about show. Why? Simple, the market is a real thing and totally objective. It doesn’t care how you make your money. It simply will reward careful risk management and strategy. It will crush those who even attempt to pick bottoms and tops. Day traders that claim to know the ins and outs of the market will be destroyed. If they’re really knowledgable, they’ll end up getting jobs at CNBC, talking about how everyone is making money  because the market is up. Explaining that the negative inventory numbers are the sole reason for the market’s down move in a particular session.

Let’s leave the excess of information to the market gurus. As daytraders we probably don’t need much of the stuff that we use on a daily basis. Sure it’s cool to tell people your economic forecast for the next four years at your next cocktail party. I would love for people to come into my office and see my desk full of six monitors, a fresh copy of the Wall Street Journal, and subscriptions from every financial magazine from Trader Monthly to Technical Analysis of Stocks & Commodities.  But in the end, what’s the use of all of that show if it doesn’t necessarily make me more money.

The key to making it in this businsess is simplicity. Don’t make it harder than it is. No, you don’t know it the market will continue to go up, down, stagnate, nor for how long it will do so . You don’t know how far a stock will plummet or rise. You don’t know how X company’s stock will react to news that it missed earnings. All you really know is how much you’re willing to lose on a particular trade, and all you can do is hope that at worse that’s all you lose because with slippage that’s not even guaranteed.

I’m not saying this solely based on my day trading experience. I’ve read this type of inormation on other blogs. More importantly, I’ve seen guys that make over 100k a month in my office, but do it with such ease and carelessness. They’ll even tell me that they don’t know where the market will go, they just take setups that have worked before, and manage risk.

If you read Maoxian’s trading blog, you’ll realize that through his dummy methods he tries to explain just that. Trades on a larger timeframe, takes fewer trades, and doesn’t really mess with the the stops. It’s so simple that it took me 7 months of trading to actually give the method serious consideration. This is after I have tried every other method that had a higher level of sophistication, and therefore logically had to be more profitable. Of course this wasn’t the case, and I’m only upset at myself for having fallen into the trap of making my job harder than what it is.

I know I digress and this post could have been a lot shorter. Hey I could have just said the secret to making money is cutting your losses short and letting your profits run. However, for  some reason, I think people wouldn’t have paid attention to such a short post because in the eyes of many, daytrading can never be that easy.