A Statement of Principle

Yesterday I was thinking to myself: why spout off on a subject that thousands of people blog about everyday, with more information and bells and whistles, etc.?

Why do I feel impelled to do this?

Well I've been doing it lately to clarify and develop my own trading discipline, and maybe my perspective can add something positive to the mix, here on the big bad 'net.

What I've learned from another difficult discipline (piano technique and performance) can be, with some imagination, applied to just about any field, to wit:

1. Find simple and concrete methods of maximizing efficiency.
2. Learn and strengthen these methods, until they are an "unconsciously competent" habit.
3. Have the strength of character to apply these methods until the desired result is obtained.

I could write a book about my adventures in piano technique, but now I want to muse about what I think is good trading technique.

I think most traders I've met, even some very smart ones, work in a constant state of information overload. They plan a little, and trade a lot.

Yet I believe that it is possible, and even desirable, to simplify trading as much as possible yet retain a positive expectancy over the course of several trading campaigns.

I think you need only two things to develop a winning trading plan:

1. A trending indicator (Moving Averages or MACD)

2. A overbought/oversold indicator (Stochastics, Williams %R, or even a good knowledge of candlestick charts should be enough).

And that's it!

For example, here is a five year chart of SPY:

EVERY TIME we sell at the oscillator high this year it has been a positive trade...in this case a Slow Stochastic (5,3)

THIS IS A SYSTEM THAT ONE COULD HAVE LOOKED AT THE MARKET ONCE A WEEK

I do not have the self discipline to do that, but the point is, it's possible to generate a positive expectancy from simply looking for weekly peaks within a framework of an overall trend (higher lows/highs, or lower lows/highs)

More on this later.