This popular blog was first published over three years ago. I thought that a timely update was called for. You’ll see that the Equity Chartstyle has been significantly revised and I have aded a Mutual Fund Chartstyle as well.
I spent a couple of hours this past Saturday at the van Gogh exhibit in Philadelphia, and I walked away with a number of confirming insights about successful trading. Vincent van Gogh produced over 2,100 artworks in his brief life of 37 years. From what I saw, his highly recognizable style varied significantly depending upon his mental equilibrium. My observation is that during well-documented bouts of mental illness, he produced more complex paintings. Without exception, my favorite canvases were those painted by van Gogh when he was at peace with himself and completely in control. The results from those periods of his life were simple, bold and beautiful paintings. To me, this confirmed my own experiences as a trader. When I am in equilibrium, I manage to ‘keep it simple’ and invariably, I then produce beautiful results.
Years ago, there was a research project done involving professional horse race handicappers. The researchers surveyed the top handicappers, tracked their results and found that the actual amount of historical and relative data each used varied widely. They then reduced the number of data inputs each was allowed to employ and tracked those results. The findings showed that the handicappers’ accuracy increased despite the fact that they reduced their number of data inputs.
The conclusions reached in this academic study aligned perfectly with my own experience. For myself, ten (10) is the “magic number” on many fronts. If I keep things simple using only my ten indicators and then limit my actively traded portfolio to ten positions, beautiful things happen. We all know it’s a challenge to keep it to just ten indicators when some boxed software programs have over 250 technical indicators. I tell my college students that I won’t discuss Bollinger Bands until they can prove to me that they intimately understand my basic basket of ten indicators.
This is the Trading Toolkit of Ten Basic Indicators that I use to look at the five essential elements of any equity:
The basket of indicators you use has to be your own personal creation. You have to believe in it completely. It will be less stressful and take less energy if you build the profile. Anything you can do to reduce the stress of trading will flow to your bottom-line. Investors from my college classes consistently tell me that some of the most profitable advice I’ve given them centers on this notion of simplification. It may be intellectually stimulating to explore many indicators, but I can assure you with certainty that there is an inverse correlation. As the complexity increases, the profits decrease.
In trading as in chess, you have to study hard, but you also have to study smart. Embrace the ten indicators in your trading toolkit. If you understand the subtleties and usefulness of each of those indicators, the market will reward you with a van Gogh of your own.
Mutual Funds
These investable present unique challenges as they are usually prices once a day and have no volume to plot. As such, I like to watch momentum and price relatively closely. Another suggestion is to look up the top five equity holdings in the fund and place those in your ChartList next to your Mutual Fund. The individual equities do have volume and your fund’s performance will be highly correlated to its top five holdings.
Trade well; trade with discipline!
-- Gatis Roze
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October 17th, 2015- ASSET ALLOCATION WORKSHOP with Gatis Roze & Chip Anderson.
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