Charting Stocks for Trading is a very common strategy these days. From all the gamut of charting software, tools, techniques, strategies, tools, research reports, and an unlimited supply of trading tips make everything complex and tough to understand. I have been running pillar to post, one guru to another, reading books after books and trying out all the tools available in the stock market only to realize that profitability is not in a fray, ended learning nothing and losing everything.
When I started a decade back, believe you me, except for books nothing was easily accessible and very expensive. Especially the charting tools and backtesting were so expensive that even if I don’t earn money in the stock market my capital would be washed out in a year.
You might feel uneasy at the beginning that you are depriving of certain tools, indicators, strategies or even charting tools. I was ready for it when I started to test simplifying charting and keeping as bare minimum as possible.
To my surprise,”[P]rofitability increased by 142.24% from the previous best-performing strategy and losses reduced by 72.34%. These numbers are not so great but what is invaluable is the peace of mind while trading in the Indian Stock Market. Charting stocks in this new format got addictive.
I am going to point down the exact learning and lessons so that you to can benefit out of it.
- 1 Charting Stock In Decluttered Way
- 1.1 Lesson 1: A Little Less Distraction Can Mean a Lot of Profitability
- 1.2 Lesson 2: Deliberate Less Trading Signals to Increased Profitability & More Clarity
- 1.3 Lesson 3: Being Profitable Should be Your First Goal Not Being Right or Creating Complexity
- 1.4 Lesson 4: Have a Simple Trading Strategy, Stress-free Trading
- 1.5 Over To You
Charting Stock In Decluttered Way
Keeping Stock charting every simple and having least and most important possible technical indicators and tools. Simplicity in trading will bring about more clarity and in turn lead to better decision making.
Lesson 1: A Little Less Distraction Can Mean a Lot of Profitability
The Spiritual Principle of Clarity by Dr. Karen Monroy, “I also did them the kindness of being Clear. There is no mystery to why they came unglued, and I simply will not allow my waters to be muddied by another-I can do that all by myself thank you very much.”
Our ability to do a serious trading needs a lot of emotional and cognitive ability and even the minutest distraction could have a chain effect.
I started off with spending time reading chart without any indicator, technical analysis, tools or even news for that matter. For 1 hour looking simple candlestick chart with different time frames analyzing and doing nothing else.
This is how the first hour looks like:
- Reading Daily and Monthly charts
- Analysing their demand and supply.
- Studying Volumes.
- Understanding Candlestick Patterns.
- Analysing Volumes with Candlestick Patterns.
- Looking for Key Points
The entire above process goes on for 1/2 an hour.
Take some time out. Take a break Drink some water. Rest by Meditating for a While. Back to Chart again.
- Looking for other Time Frames.
- Confirming the Previous Key Points from the different time frames.
- Looking for lapses and opportunities.
- Looking for Chart Patterns.
- Confirm the Chart Pattern with Candlestick Patterns.
- Understanding Trend
- Drawing the Trendline.
- Confirming the Trendline with above study.
The entire above process is scheduled for a pre-market hour and first thing in the morning.
Sometime candlestick pattern and chart pattern create an opposite decision then those are the times I rest for the market to give me a clear direction.
I don’t hesitate not to trade.
This improved my performance.
For Sure! Increased my performance. Nothing more than candlestick and a notebook to take down notes from the charts.
At certain times each step takes several rounds of reading, analyzing, understanding, comparing, confirming, and finalizing.
I have prepared myself based on the study what should be expected out the market. Keeping in mind various outcomes I have decided the pertaining actions to be taken. If you closely notice I have not used any indicator or tool until now. Simple candlestick chart with Demand & Supply analysis.
Pick one stock for charting and don’t get distracted with many charts, underlying or companies. For beginners, you should focus on highly liquid stock preferably Index Stocks.
Lesson 2: Deliberate Less Trading Signals to Increased Profitability & More Clarity
Trading Signals, Tools, Indicators, Tips, Different Charting techniques all are factors that divert your attention from the most important details in stock charting. One should also consider adding business news channel, business newspaper, magazine, tips, broker stock trading ideas if that could be a concern of distractions.
Every person having the same set of tools or techniques is not essential. I have used candlestick chart and standard deviation(Risk Management) for my studies. I also used basic Demand & Supply analysis and nothing more than that.
I understand these tools throughly and I am confident that I can put these to best use.
Choice of tools and technique vary from person to person. Some might use a combination of moving averages and candlestick chart. Or High Low method and candlestick chart. The focus here is not on which tools are being used. Our focus is only on the number of indicators one should use.
This also saves you from mastering multiple tools and techniques. SImply with this choice instead of being a Jack of all signals and techniques you are just mastering one.
Limiting your tools to study the stock chart you are not only limiting your study but also mastering the few selected tools. Although most of the traders search for a holy grail of trading style and technique. In search of this most miss out on even more important aspect which is Risk Management and Money Management.
Limiting the tools and technique for stock charting give your ample time to be prepared for Risk Management and Money Management. In simple terms, money management is making sure you have money in your next trade and risk management is making sure that you don’t lose all your principal or capital.
Lesson 3: Being Profitable Should be Your First Goal Not Being Right or Creating Complexity
I have found in most of my workshops and even while discussing with other tutors that most of the time students expect something very complex and holy grail while learning stock charting.
On the lookout for being right all the time, they miss out on making money in the stock market. This is more to do with psychology than stock charting itself.
If I enter the stock market for being right, “[N]ow if the stock market does not turn out the way I have expected, I get emotionally involved with the stock market.” I have started a losing battle right from the beginning.
We aim at being right all the time in the stock market as a part of human nature and psychology. I also have started with the same notion. Nevertheless, things changed when I read the Pareto’s Principle which explains in details the 80/20 rule. Only 20% of the trade will give you 80% of the return in the stock market.
If you can maintain that 80% of your wrong trades should be able to lose only 20% of your principal amount then you have started the battle with a positive note. This is Risk Management and Money Management becomes very important. I am not going to talk about risk management or money management since that is not our focus right now.
Lesson 4: Have a Simple Trading Strategy, Stress-free Trading
It’s tough to have a Simple and Stress-Free Trading Strategy. Stree-free and Simple may look at the two side of the same coin on the outlook. But they are complementary and supplementary to each other.
One of my favorite books when it comes to trading.
The trading bible for the new millennium In Come Into My Trading Room noted trader and author Dr. Alexander Elder returns to expand far beyond the three M’s (Mind, Method, and Money) of his bestselling Trading for a Living. Shifting focus from technical analysis to the overall management of a trader’s money, time, and strategy, Dr. Elder takes readers from the fundamentals to the secrets of being a successful trader–identifying new, little-known indicators that can lead to huge profits.
The crux of having a simple stress free trading strategy is very clearly mentioned in the book.
“A person with a large account who bets a small fraction on any given trade can stay calm. A person with a small account grows tense knowing that any single trade can either boost or damage his account. As the stress rises, the capacity to reason goes down.”
The right way to risk management in simple words is to have a large account and take small bets. If you are taking big bets with small accounts you would end up being stress and reduce your decision taking ability drastically. Similar is the case with trading with the loan amount. “Trading your own capital reduces the level of stress. having to raise money increases tension and interferes with trading. Taking a loan is not a sensible way to raise funds because the cost raises an insurmountable barrier to success.”
Trade with your own capital, take small bets and limited technical indicators.
Over To You
It’s a Personal choice if you want to actively passive or passively active.
The strategy that makes the most money is the best choice. Nevertheless, understanding ones nature accordingly selecting the strategy can give much better returns.
Pro Tip: You would be requiring a very good stock screener to get down to your next stock. A good stock screener is as good as you are.
Come back here and tell us about the before-and-after. I bet you’ll have something to say! If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank you!