The Perfect Indicator

 

Date: 9/7/2021
Author: Chris Hood

 


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.


I’m going on record that I’m a bit of an indicator junkie.

As I analyze trades during webinars and coaching videos, I’ve often gotten comments that my charts look like gaudy craft projects.

Honestly, one of the biggest laughs I’ve gotten is when one client called them “bedazzled.”

I suppose I could take offense, but it’s true.

Sometimes I even get too much on there, even for myself.

Darvas boxes, Fibonacci extensions, volume ledges, and moving averages. If it’s available, I probably use it in some way.

There are even several proprietary indicators like the Alpha Score that I’ve created and coded myself.

Could I trade with less?

Of course.

I have my primary indicators, such as the TTM squeeze and the EMAs. Still, I prefer to have my conclusions about the stock in question confirmed by as many methods as possible.

Does this mean I never lose?

Certainly not.

I take my losses like every other professional trader, but the congruence of multiple signals increases my confidence in my decisions.

Though I would never suggest you trade merely on a single indicator, you can definitely get by using fewer than me.

So why do I do it?

It’s just my personality. I love data, and I hate being wrong.

Still, no matter how many indicators you use, there’s no such thing as a sure thing.

I will say that there are some critical techniques to technical analysis and charting stocks. If you don’t at least learn the basics, you’ll be flying blind.

However, too many novices are searching for that perfect indicator – the Gold Goose that never loses.

Sorry but it just doesn’t exist.

The key to profitable long-term trading is less about indicators than your trading psychology.

Even if some near-perfect indicator did exist, like a magical crystal ball that was right 99.9% of the time, most people would still lose money.

They’d lose because they had no control over their emotions.

I know this because I see it every day.

Often, I’ll send out a trade alert to my subscribers with specific entry and exit criteria. It’ll be based on several high probability signals, and most who get into the trade will make money.

But some will take losses or only make a fraction of what they should have.

Why?

Either poor entries or improper management of the trade once placed. Both mistakes are usually driven by emotion.

Consider the entry. Do you make these mistakes?

When I enter a trade, I’m looking for a specific price – I never want to overpay for the options I buy or be underpaid for the premium I sell.

In a long call entry, options prices can move quickly.

Acting on the alert without considering the price can mean that you’ll chase the trade. On the other hand, getting in late to the party means missing the first part of the underlying’s movement.

Greed and impatience mean you’ll miss out on the “easy money” part of the trade and only make a few bucks for your risk.

You might even lose entirely on a significant pullback.

The same is true with management.

Where one trader will hold through the P/L swings common due to volatility so that they eventually become profitable, you might panic sell and realize a loss.

None of these trades have anything to do with the indicators or set-ups.

After all, you had the same information as everyone else.

Your emotions just got in the way.

This is a call to do some introspection on your losses. If the set-up is technically sound, then the issue is likely emotional control.

Make a note of how you feel when you enter, exit, and make adjustments to your trades.

Find the psychological triggers that are sabotaging your progress, then work through them.

It’s a simple as that.

Cheers,
Chris Hood

 

 

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