Tuesday, 8 December 2015

Simplify Your Trading



of what is written about financial trading tends to focus finding new strategies and ways to profit. Certainly for the new trader on their first voyage of discovery into the world of financial trading the accumulation of knowledge and technique is paramount.
For sure, understanding the basics of technical analysis and fundamental factors that drive price changes in the markets is a prerequisite of any individual that wants to take up the challenging and pit their wits against the market.
There does however come a point in time in a trader’s career when complexity can actually prove a burden. Many traders find that they increasingly become bogged down with strategies and indicators… heck even the operation of their charts slows down due to the sheer weight of processing and validation that occurs for every trading decision that they make.
Having traded for a number of years I too have experienced this dilemma. You start out with a simple strategy and keen to increase your success, you look for additional validations and ways to improve it.

Not content with a binary options strategy that can win 7 out of 10 trades you want to push this to 8 or even 9. Of course we all know that simply adding a few more filters and indicators to our charts can help us to better time our entry and filter out false signals?
An interesting concept that I think can suitably be applied to trading is that of the law of diminishing marginal returns

This states that,
‘in all productive processes, adding more of one factor of production, while holding all others constant will at some point yield lower per-unit returns.’
Now of course this does not suggest that a strategy should not be monitored, verified and refined. Indeed this is how poor strategies can be made profitable and generally how traders can find their way. However this process only works to a point, beyond which it can actually prove to be counterproductive to generating good returns.
‘Getting back to basics’ is a term that most people have heard of. In many instances it is good advice and can be used by traders to help them find their way again following if their performance is flagging after a series of poor results. Even if your results are holding up, it can always be worth reviewing your trading plan and looking for ways in which you can simply trading and possibly improve your outcomes.
To help you with this process, here are some areas that you can look at to help you ‘de-clutter and simply your trading method.’
  • Refine Your Assets – A common trading mistake is to try to spread yourself too thinly. Just because your broker may offer 100 different financial assets for trading, it doesn’t mean you have to trade them all. For example, if you trade Forex stick to the majors. They are called ‘majors’ as they are the most traded and therefore receive the most analysis. Consequently their volatility is likely to be less, making them more predictable in their movement.
  • Stick to your Strategy – It can of course be tempting to jump around between different strategies and across different time-frames and markets. However in doing this you risk losing your focus and missing opportunities. If you have a strategy that works then stick with what you know. Also recognise your temperament. Some traders gel better with longer term positions, some trade better over short timeframes. Recognise and trade to your strengths.
  • Remove Unnecessary Indicators – We are all guilty of using too many indicators and trying to cram too many trading methods into our trading. ‘Confluence’ may seem a good idea but in reality it often leads to decision making paralysis. Fire up your charts and remove anything you don’t need. Clarity frequently provides a clear route to the endgame of building profits.
The above tips should be sufficient to start the thought process of how you can simply and ultimately improve your binary options trading approach. Once you have addressed these aspects of your trading you might also want to look at refining and simplifying other areas of your trading such as your risk control or even simply tidying your physical trading environment.
However far you take the task of simplifying your trading it pays to keep focused on the key objective – keep your trading as simple as possible while at the same time maximizing your potential to make money.

4 comments:

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