Technical Analysis

Why Simple?

The answer is, because “simple” works, but that’s not enough information to fill up an article. So, let’s take a look at some unrelated examples to really see if “simple” is the best approach to most of the things we do.

Have you been to a gym lately where they offer personal training? I have been going to the gym for as long as I can remember and my routine has not really changed much over the years. These days, however, I see some interesting exercises going on during personal training sessions around me. I see people standing on one foot, on a big rubber ball, doing arm curls. The first time I saw something like that I thought of the circus. Just the other day I was bench pressing and to my left I saw this man walking toward me with his trainer right behind him, only this was no normal walk. The trainer had him taking huge steps and touching his knee to the ground while lifting a medicine ball over his head. I could have sworn I saw this before at a Cirque Du Solei show.

Don’t get me wrong, I think the big push into personal training is great. At least it gets more people into the gym; who without personal training would still be eating chips on the couch. Make no mistake about it though, when you go to any gym and look around, who are the people in the best shape? It’s the people doing the same basic exercises people have been doing for decades. A stair machine or treadmill mixed with some basic weight training and I am all set. And, let’s not forget the even more important part of fitness, what you eat. There are so many diet fads going on these days that it’s easy to forget that the main issue is very simple, calories in vs. calories out. Is the problem really choosing between the thousands of diets available, or is it the simple answer that people eat too much food and lack self control? The answer, as always, is very simple. You don’t need the expensive gym and fancy workout routine, everything you need is at your local YMCA or your home for a small investment. Expensive diets are not the answer either, no matter how much hype. A well balanced, low calorie, and low fat diet is the simple solution. Just like gravity, you can’t ever get away from the calories in vs. calories out equation, it is what it is…

I have had two multi-year stints coaching youth ice hockey. The important part of the story I am about to tell is that there was about a 7 year break in between. Hockey, like other sports is a simple game, strategy wise. It’s all about getting down the ice faster and smarter than the other team and scoring more than they do. All the team drills I have the kids do are very simple drills that have them getting the puck down the ice quickly. After taking a break from my first multi–year coaching experience, I decided to do it again. As the year began and we were a week away from our first practice I received a huge manual in the mail from the president of the hockey club. It was a new coaching manual created by USA Hockey and it was filled with all kinds of new drills that I had never seen before. As I turned the pages, I saw that the drills were getting more and more creative, each drill required more and more cones and arrows than the next. Something disturbed me about this new bible of hockey drills I was supposed to unleash on my young fresh hockey kids.

The more I read, the more I noticed that kids were spending more time skating from side to side than they were skating up and down the ice to the other team’s goal. This is like a football player running with the ball, having nothing but space in front of him, and deciding to put on the breaks and start running from sideline to sideline. Very soon he is going to get caught and either lose the ball, get tackled or both! Why the need for the new fancy drills? Because people are never content sticking to basics and mastering them. There is always this desire to reinvent, make some kind of statement, get fancy and so on. I felt it was in the best interest of the kids to throw the book in the garbage and stick to the basics. Now that the competition was learning all these new drills that would slow them down, I figured my team had an advantage competing against that strategy. We ended up winning the Presidents Cup that year which means we were the top team that season. Our banner hangs in the rafters today from that season. We had a great team as well, but I think you get the point. I always tell the kids that the main difference between them and NHL players is doing all the basics faster. Look at some of the great basketball players like MJ and Kobe. They master the simple and basic jump shot better than anyone else.

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Fig 1

Now, let’s take a look at speculating in markets. Take a look at the chart on the left, above. Now be honest, have you ever known anyone who has made a consistent low risk living using a chart like that or any of the items below the chart? I could have made that list much bigger but I ran out of room. Some of those items are in every trading book ever written yet I don’t know anyone who has ever made a consistent living using any of that stuff. What I do know for a fact, however, is that Walmart is one of the most successful companies the world has ever seen because they have mastered one, and only one, simple skill. The buy low and sell a little bit higher. They repeat this thousands of times each day, maybe millions sometimes. This is where everyone gets it wrong in trading. They think how Walmart makes money is somehow different from how you make a consistent living trading the financial markets. The truth is, there is no difference. Walmart buys at wholesale prices and sells to us at retail prices. They are so good at it that they can sell things to us a little cheaper than their competition, which is why they are the top traders in their industry, if you will.

 

Supply/Demand Income Trade. 2nd Feb 2015

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Fig 2

Here is an example of a trade from last week that I took from our Supply / Demand grid. This is no different than Walmart selling at retail prices. Instead of me selling toilet paper at retail prices, I sold the DAX at retail prices (supply) to someone who was willing to pay retail prices. That buyer on the other side of my trade likely used one of the items in the first example as a buy signal. Unfortunately, that trader doesn’t realize that most of those tools that give a buy signal have you buying at retail prices and selling at wholesale prices. And by the way, it may not sound sexy but I love being Walmart when it comes to trading.

Occam’s Razor, it is a scientific principle that suggests the simplest answer is typically the right answer. If you’re trading or investing results are not where you want them to be, take a look at every component of your plan and begin to question any part of it that seems complicated. Chances are, it is a small set of “simple” answers that will get you where you want to be.

Sam Seiden can be contacted on this link: Sam Seiden

Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.Points of interest:• Chicago Mercantile Exchange Floor• Author of Market Advisory Letters• Fund Manager/CTA• Speaker to Investment Groups, Universities, and Private Seminars• Contributing Author for Stocks, Futures, and Options Magazine, Active Trader Magazine, and Futures Magazine• Trading and Investment Conference Speaker

Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has tr...

Forexmospherian

Legendary member
39,928 3,299
I have good respect for Sam Seiden and always thought he was a good professional trader and have liked many of his supply and demand methods.

However - I have to differ with him on the KISS and keeping it simple stuff - nothing wrong with it - it can work with many subjects and skills - BUT - normally you get simple results - ie nothing to write home about.

We all know 75 -90% of all FX trader fail and not make consistent profits and results ongoing - and most give up.

For me the trouble is - most view trading as being simple and relatively easy to make continual wins and make money.

Reality is - it's NOT.

it can take 3 to 7 years for a part timer to master all the methods required to become a consistent trader making money. Trading is complex - there are so many factors to bring in the equation - yes we can all close our eyes and hope and then think if we get a winner its because we have read the markets correctly at that time of the trade.

The trouble is - after you do anything for over 5 or 10 + years and you get good at it - its then simple for you - and all newer traders are thinking - why can't I be that good in 3 months - it looks so simple

Experience - study - commitment - mindset control - luck - and time being able to spend years getting there - and then yes its simple - just like solving a rubic cube in under 5 mins and riding a unicycle whilst juggling 5 balls - its all easy when you have been doing it for years and years - but others may differ - ie the 75 -90% of traders who never really get there

Just my own view

Regards


F
 

evertontrader

Member
61 9
Do you not miss the major trends?

Your entry stratergy to me seems to require a pullback to the areas you call supply & demand zones. What happens when the market is moving in the direction of the prevailing trend or a simple strong breakout occurs and doesn't come back to your marked zones... you leave the trade behind?

Also the idea, buy at wholesale, sell at retail...is fine if the range top and bottom holds but how do you classify such price zones as wholesale and retail in a prevailing trend? If the asset is in a long term uptrend, a price that your stratergy deems retail will shortly become wholesale and vica versa in an downtrend. As the market oscilates up and down moving progressively in the direction of the prevailing trend, these zone classifications would quickly be overwriting each other unless a range is established, would they not?
 

TWI

Senior member
2,527 252
I agree with the idea of keeping it simple but you first have to understand your "edge". I did not understand a thing about how a trading decision was actually being made in the article. The easiest trades occur when you have good 3rd party transaction flow, good market information and experience of how to read same, then it is pretty simple, at least the odds tend to be in your favour. Cut all that out and you need to form your own opinion, then the edge is much smaller and the odds are a little less in your favour. When I place a trade I never really know if it will work out or not but I always have a good reason to place it and I always know where I take the hit and get out. This to me is the simplicity part and this is in my opinion more important than what indicators you are using.
 

SniperDaytrader

Member
93 43
KISS approach rarely works

I got quite opposite opinion on KISS approach to trading than the author. I do agree with the last part of retail vs wholesale price however. I wrote an article about it myself. Not sure if T2W will allow me to publish it here tough.
 

neil

Legendary member
5,167 745
Fishing trips

I agree with the idea of keeping it simple but you first have to understand your "edge". I did not understand a thing about how a trading decision was actually being made in the article. The easiest trades occur when you have good 3rd party transaction flow, good market information and experience of how to read same, then it is pretty simple, at least the odds tend to be in your favour. Cut all that out and you need to form your own opinion, then the edge is much smaller and the odds are a little less in your favour. When I place a trade I never really know if it will work out or not but I always have a good reason to place it and I always know where I take the hit and get out. This to me is the simplicity part and this is in my opinion more important than what indicators you are using.
These articles are not to teach you anything, well rarely, but to induce you to go to their site and purchase "how to trade" magic dust.
Am I a cynic?
 

winny

Junior member
11 0
simplicity is the best ,it makes me decide with No delay

simplicity is the best ,it makes me decide with No delay . anybody agree?
 

Tytus_Barnowl

Member
92 7
I've met Sam Seiden, he is actually quite a nice guy without a hint of pretentiousness or over inflated ego. For people who have nothing better to do than knock his principles then I ask this question:
What is wrong with indentification of Supply and Demand Zones on any chart, then waiting for price action to enter these Zones before executing a trade?
How you execute the trade is up to the individual, ema crossover, ichimouku cloud, point and figure counts, bolly bands close out close in, inumerable methods. Just have an answer to my first question before you knock what this article is all about.
 

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