Hello T2W, Glad To Be Back (formerly "RAMOUTAR")
It has been many years since I've been here and I'm glad to be back from "across the pond". I'm kicking off my return with an article that I hope you'll find helpful!
Why Is Keeping It Simple Is So Darn Complicated?
K.I.S.S. Keep It Simple Stupid, or is it Keep It Stupid Simple? I’ve been working with a few traders in the last couple of weeks, and one of them asked me the question, “Why Is Keeping It Simple Is So Darn Complicated?”
I must say that K.I.S.S. is a phrase that I have shared with many traders over the years, and it’s always a struggle to breathe life into it. In my honest opinion, K.I.S.S. never gets simple, it just gets easier.
Okay, so what does it mean? Well my definition is, just remove the emotions and self-will from the equation, and follow the rules. Don’t complicate things. Sounds “simple” enough. Well it’s not, and probably never will be…at least for me.
It took lots of time, mistakes and losses before I found some “happy medium”. I will say that the most important discipline that has helped me is having a predetermined entry, stop and target before entering any trader or investment, and that discipline involves another set of processes. I apply that discipline to the most serious commitments in my life: trading; investing (stocks and real estate); relationships, traveling, etc., etc. For now, I will keep it “simple” and just refer to trading and investing.
The Entry, Stop and Target:
Approximately thirteen years ago, (on my previous website, Elitetrader, Trade2Win and Esignal) I began sharing some extensive ideas about the entry, stop, target and the risk reward ratio.
Removing emotions? Yep, removing emotions. Having a predetermined entry, stop and target, and more importantly entering them into my trading platform are very strong keys for eliminating the “me” out of the equation. How? Well once I’ve predetermined my risk, I’ve addressed and stared my potential fear right in the eyes. By setting my target, I’ve “done a pretty good job” at trying to control my greed. Sounds like I’ve arrested my fear and greed. Well I hope it sounds good, because it’s a darn hard task.
The risk and reward ratio is a pretty simple equation, and I’ve found that as a result, I’m right most of the time as long as I follow my own rules “most of the time”. As time has passed, I’ve realized that I require a greater discipline when selecting my trades. For me, it’s not just about my personal P&L; it’s also about others who follow me. My performance is always under the microscope, and my guidance needs to be direct and very clear. There are folks counting on me.
My Trading Stable:
I follow a specific (a phrase I coined many years ago) “personal trading stable”. If I’m going to sit in front of the screens all day, I’d better be looking at the right stocks. I don’t need unnecessary distractions. Before I begin scanning for trading ideas, I’m able to reduce the amount of time, energy and risk by focusing on stocks that meet my criteria. I’m “old school”. I do not use scanning software, I’ve been using the same process for many years and it works well for me.
I believe it was Bruce Lee’s quote (paraphrasing)…”Don’t fear the opponent who knows many moves, but the opponent who’s used the same moves many times.” That makes a lot of sense to me. In some way, I become a “specialist” in the stocks I trade. It’s pretty scary. In many cases, I can sit down and draw a chart of each one. There are seven specific things I look for in a stock, and I’ve memorized most of them.
Over the years, I’ve come under fire by traders. The contention? “Why limit the possibilities? As time goes by, I have less and less time and tolerance for attention to detail. Look at it this way; there are thousands of publicly traded stocks. If that one stock that I missed a trading opportunity on is not in my portfolio, I might “BMW” about how I missed it. I will complain and kick myself in the keister for entering too early or too late, exiting too early or too late or not entering or exiting at all. The fact of the matter is these are publicly traded stocks, and the majority of them are not going private anytime soon. There’s always another opportunity, that’s the beauty of trading.
Is it challenging to avoid “attractive opportunities” in stocks that don’t meet my criteria? You’re darn right it is! I’ve held back from pulling the trigger on those “flashes in the pan”. It seems like there is at least one stock every couple of months that loses a ridiculous amount of market cap in one day, and I’m tempted to just jump in for a quick ride. I’m proud to say that I’ve avoided them. Looking back, I would have lost on most, if not all of them.
My trading stable is reviewed monthly. It is during this time that I remove the stocks that no longer meet my criteria, and replace them with new candidates. The older stocks are placed on a watch list, and I set alerts. When those alerts are activated, those stocks may find their way back into my stable.
I believe that when my scanning and trading start to become boring, I “might” be on the right track. As long as my trading accuracy stays within an acceptable (to me) and consistent range, I believe I am on the right track.
Discipline In Scanning and Identifying The Right Trades:
Currently. My minimum risk reward ratio is 2:1 (or 1:2. I will risk $1 for a $2 gain). As chart patterns consolidate, and volume dries up, my R/R/R becomes more stringent. Coincidentally, as of this Friday’s close the SPX has been consolidating. Although it’s a wide lateral range, there is no clear up/down trend, and if we stay in this range I will tighten up my R/R/R until the next true trend develops.
I try and keep myself out of harm’s way by avoiding setups that do not meet my criteria. For me, that is the very first step in remaining as a profitable trader. I select stocks that have a clear trend or, are about to break into a clear trend. I also select stocks that allow me to profit in several time frames. For me, there’s nothing better than “trading inside of the candles”. The “trifecta” for me is being able to trade the same stock as an investor, swing and day trader.
In addition to technical analysis, I use a unique “techno-fundamental” approach. I look at things such as the tape, put/call ratios, short interest, Form 4 transactions, and institutional activity just to name a few. These are just a few precepts that “paint the tape”.
Putting It All Together:
Well…that’s the tough part. Things really began to click for me when I developed a “trading stable” that works for me, a specific set of steps for scanning, developed and followed a daily schedule (by the half-hour) with reminder alarms, filtering what I watch during trading hours and maintaining a trader’s/ life balance (see daily schedule). These ingredients proved their effectiveness some years ago, when I had a critical accident and it affected my trading career.
In essence, the ingredients can be the means to one of two ends, a predetermined profit or loss. Whatever ingredients "you" select, I can assure you it will take time.
I haven’t kept it simple yet, but I’ve managed the complications with more ease.
Hope you found this helpful.
“Happy trading and investing. May the trend be with you!”
-Jai
, bought courses but couldn't find my style of trading that will resonate with my somewhat spiritual personality.
