Focus on the Right Things and Watch What Happens!

By: Stuart McPhee
Submitted: 2007-01-17 16:16:37
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Today, computers and trading software make it so easy to access information from almost anywhere. Never before have so many people had useful tools readily available to them at their fingertips.

I believe this situation presents a problem for a lot of people, in that they try to overcomplicate matters that don’t need overcomplicating. With the features of some charting software, people will try and write formulas to identify the most bizarre and complex things.

I once had a client present his entry signal to me which I estimated took 10-15 minutes to do so. After two minutes of listening, I am already starting to shake my head inside. It included things like, “well, I wait for that indicator to cross that one and then … “ and “now if that indicator is still below 50 for the next 3 days and that indicator doesn’t cross above that one … “ and how about “must cross over that blue line at an angle of more than 45 degrees … “ and the explanation goes on and on.

I believe that people have a tendency to complicate matters where in most instances a simple solution will be more than adequate - our entry signal when trading is no exception. As mentioned, some examples I have heard involve numerous indicators crossing each other at various angles and changing colours and all sorts of trivial conditions. In these cases, if I was to take their notes away from them, they wouldn’t be able repeat 20% of their entry signal. This is a concern.

Generally, two big problems that traders face are not having a trading plan and if they do have one, not following it. There is no need to complicate things beyond simple comprehension. One thing I have learned about trading plans, is that the easier it is to understand, the more likely you are to follow it.

People have been trading various types of markets for hundreds of years – and making money doing it. It wasn’t too long ago that a computer was not common place in every home as we find it today.

Computers were once restricted to people wearing white lab coats and they filled up entire rooms accompanied by the deafening noise of cooling fans whirring away. In these days, hand drawn charts with few if any technical indicators were used. Yet, despite this, people still made money trading. They followed the rules that have stood the test of time.

So, if people at the beginning of the 20th century were profiting from speculation in a market, yet they didn’t have access to a PC, charting software, various technical indicators and customized lines covering a chart, clearly having these tools is not an absolute must, nor even necessary. No doubt, they are useful tools today and many people enjoy the benefits of them but they are not the most important ingredient to your success – they are not even close.

I believe a lot of people think that the more time that can spend developing and refining their entry signal, the better off they will be – sometimes to the detriment of more important areas.

How do we fix this? The important point to be made here is to focus. Focus on the right things and the things in your trading plan that are important. As an example, several years ago, a colleague and I were running a full day course where we both presented on different topics throughout the day and the attendees could decide which presentations they attended. As the day started, the group split themselves quite evenly to listen to the two separate presentations. This even split continued throughout the morning as people moved between the two seminar rooms between breaks and maintained a fairly even split.

After lunch, the first two presentations were on industry sector analysis and money management. The group split themselves up again however this time, 80% of the people went into the seminar room for the presentation on industry sector analysis and the remaining 20% entered my seminar room for my presentation on money management. Before I started my presentation, I said to my attendees that this is another reason why most traders fail. 80% of the group thought that industry sector analysis was more important than money management and therefore decided to listen to that presentation. There are not too many more important things than money management and industry sector analysis, which was designed to help them with their entries, is certainly not one of them.

The lesson here is to focus on the right things. Don’t focus too much on your entry signal, as most people do. Keep it simple and then move onto the more important areas like position sizing, setting exits and preparing your mind for successful, disciplined trading.

Stuart McPhee is recognized as a leading trading coach and expert when it comes to developing solid and profitable trading plans.

Discover what most traders never realise which leads to their downfall. Learn about the importance of having the right trading mindset, sound money management and a solid method - The 3 Ms! Click Here ==> http://www.trading-plan.com

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