“If it ain’t broke, don’t fix it”

If it ain't broke, don't fix it

I like maxims and quips. Little phrases that tell a big story I like the parables in the Bible because a child can say, “I get it,” and an older student can say, “Oh, now I get it.” The principle of keeping things simple is a good one for most of life’s situations, including trading. And while trading skills are not easy to master, they involve simple principles.

Mastery in most areas of life includes learning to conserve extraneous movement and effort. When it is done right, it looks simple, and onlookers often say, “Well, I could do that.” But the “wanna-be” soon finds that it is not as easy as it seems. Trading can be frustrating and discouraging, but when the market seems to get you down and you feel like you will never get it, remember Sean Connery’s famous line, “Impossible, but doable.”

Too often, traders experience real highs and real lows. While the give and take is normal and expected, big swings are usually the result of changing stride or technique inappropriately. Finding your stride or niche can make trading much more consistent and smooth, and thus more profitable. Getting to know a few great trading stocks rather than collecting all of the potential candidates from recommendations and scans starts to overwhelm a trader and turns rifle shot accuracy into shotgun splatter.

So, a while back in a Trader Talk Live training, a student wrote, “The past 7 days of trading have been absolutely fantastic.” I’ve been reminded of the importance of following just a few stocks and learning (as much as possible) about their behavior.”PD is one of my all-time favorites.” She was referring to a principal that is trained in the Trader’s Forge two-day trading camp that I conduct once a month. I advise students to build a stable of good trading stocks and get to know them. Choose your top 6-10 and back-trade them repeatedly. Learn to recognize patterns of behavior. Does it behave in similar ways around earnings? Does it make clean or sloppy turns? Is it prone to throwing certain chart patterns? In doing so, you get a feel for the traders who influence the stock and improve your chances of repeatedly tapping that stock for pattern trades.

The patterns we observe are the behaviors of people. Key traders are interacting with various levels of traders, brokers, fund managers, and the public. This cast of players is unique for each stock or group of stocks, bonds, commodities, etc. Hence, unique patterns develop, and that is the key. Instead of flitting around like a butterfly from bush to bush looking for a new flower, you can find certain flowers that keep producing on a regular cycle. You develop a routine and learn the cycle so that you can just stick around and harvest over and over again.

I have a friend who taught me this principle in a dramatic way. He had a very narrow group of stocks that he got to know, and not only did he learn the patterns, but he also studied the company’s behavior. He knew how they acted around earnings, what products they were releasing, and how their stock responded to economic news and events. In just one year, he made over $750,000 trading one company. It was interesting to note that others, seeing his success, always wanted to know, “What’s it going to do next?” Like the children’s story of the Little Red Hen, most fellow traders wanted to cash in on his valuable insight, and very few asked him to teach them how to trade as he traded. It was folly to think that if he gave them the information, they would also gain the skill it took to glean the information. That, however, is human nature.

It is the nature of most people to want to find the easiest way. Most people want to find a secret or a magic strategy. This country’s GDP is based on selling the sizzle rather than the steak. We search for the fountain of youth, the shortcut, and the edge, so to speak, but in the end, one universal constant remains. Working smart is better than working hard. And in the end, the magic is usually finding the key or core of the matter and developing some simple and specialized skills.

If you can find a piece of good ground that can be cultivated and harvested over and over again, you have found one of the jewels of trading. Finding a stream of residual income is the secret of most millionaires. Patterns exist because people are creatures of habit, and the market is just people. With six to ten good pattern-trading stocks in the price range you like, there will always be something ready to trade. When you run across a great stock, you can replace the weakest one in your stable and place it on the bench until it warrants a position in the starting lineup.

The problems come when a trader chases the latest hot stock or lets their field of vision widen too far. When you find an account size, a group of stocks, and a few strategies that work, stick with them! Don’t mess with it; instead, dance with what’s “brought you.”

I would love to have you spend a couple days with me in the Trader’s Forge. As a trading coach, that is where I can do the best for you. I train folks in the Trader Talk Live mentoring workshops each week, but that training is most beneficial to the folks who have been to the two-day training at the Forge. Last week was a terrific training week in Tampa. This month is Denver, and then on to Detroit.

I hope to see you in the online web training classes held throughout the week and soon in a two-day FORGE Trading workshop.

Ryan, with Better Trade

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