You have probably heard it from someone–possibly even me in prior articles–and wanted to punch them in the face for not explaining what they meant. It seems like logical advice: “Keep your trading simple.” But what does it mean? Should I only use one indicator? Should I use no indictors? Should I only buy on a full moon and sell on a new moon? When someone says “Keep it simple” we each tend to think of something slightly different. Setting the record straight, here is how you actually keep it simple.
“Simply” is Following a Set of Action Steps
Each trade must involve a series of a events that occur. Before the trade there is the set-up and the trade trigger. Both must be there, and they must be well defined so you can simply act on what you see when the price hits a trigger level.
So keeping it simply means you have defined a set-up. This is what needs to occur for you to sit up in your chair a little and take notice of the price action. A simple set-up would be a triangle chart pattern. Popular among traders and relatively easy to see, a triangle represents a potential trade (if it is a setup you want to trade) but it isn’t a trade itself.
Something needs to happen to that triangle to turn it from a pretty pattern on your chart to a trade. Most traders use a breakout. I leave that part up to you (plenty of strategy articles on this site).
The point is, to keep it simply, all you need to do is define a set-up–something you watch for which indicates a trade may soon occur–and then establish a trigger level/event which causes you to actually initiate a trade.
Remember, trading an analysis are different things. All sorts of analysis may just distract you from acting based on your setup and trigger.
If you want to keep it simple, define your setup and trigger. It may take some work to find a setup and a strategy that produce a profit, but it must be done. Life is much easier when you can just repeat two steps, instead of trying to invent a strategy with every trade.
Add Another One or Two Steps
You have a set-up you like, and you have a “trigger” which causes you to act and get into the trade. Next you need an exit. With European binary options this will involve understanding your set-up and a trigger. Does you trigger typically result in a very fast move in your direction? If so, then you can choose shorter expiries. Or does the price typically move slowly after your setup and trigger, taking some time to put you in the money? In this case, you’ll need to choose longer expiries.
Write down 1 or 2 guidelines which will help guide your decision making on choosing an expiry.
This now means you only have three things (maybe four) to think about before making a trade, total.
Before a Trade
We only have three things to think about (for European binary options trading–with traditional markets there may be another step or two for setting stops, setting targets and also determining whether trades can be exited early), so that is keeping it pretty simple. And we only need to think about one at a time.
When you are watching the market and not currently in trades, your only job is to watch for a setup. If you have precisely defined what the setup is you are watching for, you can relax as long as that setup isn’t potentially forming.
If a setup looks like it could form, bring yourself to attention and begin to consider what type of expiry you would choose if this setup turns into a trade. Confirm your decision so that if the price hits your trigger you can act without hesitation.
The process of trading, as outlined above, is fairly simple. Focus on a trade setup, isolate a trigger and establish guidelines for how you will exit. Think about one at a time and execute that plan over and over again.
But the setup aspect should also be fairly simple. Having ten indicators on your chart to establish a setup or trade trigger may be overkill. There is too much to watch. So when someone says keep your trading simple, usually they are referring to monitoring only a few inputs.
In forex trading I typically I use no indicators, but occasionally use envelopes as a trigger. Same with futures trades. I have one line on my chart (similar to a moving average) and it acts as a trigger for trades.
A trend needs to exist for me to get into a trade, and I have guidelines for getting out of trades.
So my setup simply involves looking for a trend, and then monitoring the proximity of the price to my line (or watching for something similar to a mini-channel breakout if not using indicators). There are only a couple inputs which create my setup, making it easy to spot and simple to follow.
So that is how you keep it simple. Keep your trade setups limited to a couple criteria. Then define what your trade trigger is. Set up a couple guidelines for how you exit trades. In all you only have about 3 to 5 things to think about, and you only need to think about one at a time. That’s how you keep your trading simple.