Stock Trading

Sloppy Trader? Reduce Trading Stress by Cleaning up Your Stock Charts

When I first started trading, I was all over the place. I tried a ton of different indicators, trading methods, chart colors, subscription services, news portals — you name it.  If it had anything to do with the stock market — I tried it. And yeah, as a result, I basically went nuts and my trading stress was at an all time high.

I was confused all the time.  I was nervous.  I always seemed to load up at the wrong time and — on the flip side — I always seemed to skip trades at the wrong time. I bought at the top, I sold at the bottom.  I put all of my money into a single trade.  And I basically managed my emotions by whatever the market was doing.

Have you ever been that guy?

You know the guy I’m talking about.  The guy who throws keyboards across the room.  The guy that cusses out his monitor.  The guy who doesn’t have fun at a party because his positions aren’t working.

Yeah, me too.

One of the things that really helped me de-stress in the market was clearing off my stock charts.  Just getting rid of every single indicator and only returning the ones I really wanted. I found the confidence to do such a thing after doing 1 of 2 things.

I read The Encyclopedia of Trading Strategies.
I learned how to backtest, and I even wrote a book about it (coming soon).

After doing that I saw that most of the indicators I was using created no edge whatsoever.  I learned that my edge (as a trader friend of mine is fond of saying) is between my ears.  Which is the only edge I can really trust in the market.

Here’s what my stock charts used to look like:

No lie.  That’s what I used to look at to try and make decisions about the market.  No wonder I was usually confused and could hardly pull the trigger.  No wonder my trading stress was out of control.

My 98 step thought process would go something like this:

  1. Wow, this stock is in an uptrend, as witnessed by the 1, 2, 5, 8, 11, 13, 21, 34, 55 day moving averages.  
  2. But MACD is looking a little weak…I think.  
  3. And Stochastics 5, 3,3, is looking overbought.  
  4. Kind of.   
  5. But Stochastics 14,3,3 looks kind of okay…
  6. Maybe.  
  7. Still, RSI looks pretty solid!  
  8. We ARE kind of hugging the top of the Bollinger Band though.  
  9. And I’ve heard that that isn’t that good.  
  10. But there IS a great candlestick pattern on here…

AHHHHHHHHHHHHHHH!

Do you know what I’m talking about?  That kind of mental chatter can drive you insane in the market where decisions need to be made quickly and confidently.  Wow.  Just reading that list makes my head spin.

Simplify Your Trading Life

If you’re trading anything like this then I know you are going crazy.  And if you are going crazy then maybe you should do what I did — start with a clean slate.  How can you do that?

Well, you can start by reducing your entire charts down to a single line chart…and decide what you’d like to see on them starting from there.

Here’s a line chart of the market.

Doesn’t that already feel better? I know it dis for me. If you are used to having a ton of indicators on your chart this might feel a little naked, but give it some time.  Just look at it for a little while.

Also,  I’m not saying you should leave your charts this way — I’m just saying that this is a starting ground.  And look, I can already tell we’re in an uptrend, just by looking at this plain chart…

From here you can ask what else you need.

You might want to what the open and the close was, and what the range of the day was…so you change the line to O,H,L,C (open, high, low, close) bars.

And you get this.

Maybe you want them to be colored bars so you can get a quick visual from glancing at the chart.

Maybe when we see this we want to see how much volume is being traded.

So we add volume.

Now we’re talking!

We can see the direction of price.  We can see who’s been winning out lately, the bulls or the bears.  And we can see the volume that’s being traded.  What more do we need?

And in fact, I see here that although we are in an uptrend, it’s on light volume.

While this wouldn’t stop me from trading (an uptrend is an uptrend) I will keep my eyes open like a hawk for a turn if one should come. Now, what else do we need…? Honestly, not much more.

Sometimes I will use moving averages on the chart for some unknown reason.  I barely ever use them.  Same with candlesticks.  Sometimes I will make my charts candlestick charts, but I rarely trade candlestick patterns.  It just gives me a better view of the open and close and the recent trend and who’s been winning lately.

So the most you will see on my charts is this:

One of the most insightful books I have read on the market was Zen in the Markets.   In this book the author explains that a lot of the time we make trading more difficult than it actually is. He goes on to say that if we can tell the direction of these numbers…

27, 28, 29

Then we understand how a trend works.  For instance, if you enter a stock at 28 and it goes to 29 then that stock is going up.  If you enter at 28 and it goes to 27 it is going down.

As far as I am concerned, being honest with yourself about what is happening in your trades is the beginning of finding success in the market.  And it’s very easy to be honest with yourself when your charts are as clean as they can possibly be…and not cluttered up with a bunch of sloppy indicators.

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