Simplify Your Trading

I've found I trade best when I reduce the process to the bare essentials, with as few distractions and decisions as possible. The more moving parts a trade has, the more things there are to go wrong, upset you, make you doubt your trading strategy, and cause you start making changes at the worst possible moment. The more you can reduce the logistical overhead of any given trade, the less likely you are to become emotionally involved in it, and the more time you'll have to focus on the big picture and plan your next trade.

Here are a few strategies that might help cut down on the amount of time and energy you need to devote to a particular trade. (For those who've followed this blog for any length of time, apologies if I'm sounding like a broken record :-)

Are you using a dozen different indicators and signals to initiate trades? Try combining them into a single signal that gives you a simple Yes/No answer about entering a trade. I do this by using MS Excel to calculate signals such as Bollinger Bands and moving averages and then layering them using the =IF(OR...) function, which tells me if any of my signals have fired. An additional advantage of using Excel is that it reduces the amount of time I need to look at charts, which leads me to my next simplifying strategy...

Don't look at charts so much, especially ones with a dozen different indicators jumping up and down. Charts are great for many things, but as I've noted before, it can become very difficult to tear yourself away from them, and if you're not careful you can start spotting patterns in them that aren't there. The fact is, you don't need charts to trade. In many ways an Excel price table will serve you as well or better, if you know how to use it. I still use charts but primarily to identify interesting patterns that I then plug into Excel to test historically. I haven't actually entered a trade based on a chart in almost a year. (Yes, I know, I've discussed chart-based trades using Bollinger Bands, but these were actually initiated out of an Excel formula rather than looking directly at the chart. OK, so I guess charts are good for illustrating points on your blog as well!)

Use a consistent exit strategy that requires as little discretionary input from you as possible. For example, you can combine your exit signals in the same way you combine your entry signals, giving you a simple, unambiguous Yes/No as to when to exit a trade. Or, always set the same fixed limit order to take profit at the same level, and stick with it. Or, consider exiting automatically at certain times of day; this is my exit strategy, and every day at 5:00 PM Pacific Time I either exit my current trade, or roll it over to the next day. Which leads me to...

Combine your trades whenever possible. If you find you keep jumping in and out of the market with trades in the same direction, you'll save a lot on spread costs, and avoid the risks of slippage, bad timing, and poor execution by just trading once.

Use the Fire-and-Forget Principle. Focus on pre-determining and automating all the variables in your trades (exits, stop losses, etc.) so that once you've pulled the trigger, you can walk away and the trade will take care of itself with no further attention from you.

Are you trading multiple currency pairs that are tightly correlated? There's not much point, since they're all likely to move in the same direction at the same time. You might as well just pick one of them and cut down on the distraction of following multiple pairs. This excellent article at Investopedia identifies pairs that are closely correlated, either positively or negatively. For instance, the EUR/USD almost always moves in precisely the opposite direction as the USD/CHF pair. So if you're making long EUR/USD trades and short USD/CHF trades simultaneously, you might as well just choose one or the other, because you're making practically the same trade (and paying more on spread costs, too).

Trade less often. It's much easier to overtrade than undertrade, so odds are you're overtrading.

Hope these suggestions help simplify your trading and boost your profits...if you have other ideas about how to streamline the trading process, please feel free to post them in the Comments below.

Related topics:
Signs you may be overtrading
The perils of chart burnout
Stop wasting pips!
Limiting your emotional exposure to the markets