This article talks about the complicated task of ignoring the irrelevant information in order to avoid distractions. What are the strategies the professionals use in order to keep the eyes on the ducks without getting overwhelmed with news and events that may or may not be important?
It’s a tough one. We want to be connected, informed, in the loop. Indeed, traders want to get as much as they can, and absorb current events and market news. Many traders also believe they need the external stimulus, constantly, and don’t think they can digest the deluge of information without a continuous connection to all things related or unrelated to trading. It can become an information addiction. On the other hand, even the slightest influx of information can be a distraction to the most disciplined and focused individual... so how does a trader keep his or head straight?
Traders are a lot like miners. They need to collect tons of dirt (data and news), sift through it carefully and quickly, and allow the valuable information to pass through, and then draw logical conclusions, often with incomplete and conflicting perspectives. This is made all the more difficult by exposure to the many conduits by which traders receive information. Traders can be blown off course, made indecisive by data, and mess up even the most obvious of trade opportunities. What tends to happen as traders survive years of trading, is the ability to hone in on the most important information, discount and even ignore much of the rest, stay centered on the goals or trading strategy, while maintaining a flexible open mind subject to change when events do. While there are few shortcuts, here are some ways that traders achieve this:
You’re the expert, not the “experts.” The main thing traders derive from listening to experts is...that the experts are not so expert after all. They make mistakes They get things wrong, and if you measured their performance or track record over a long period, it usually is not that good. The second thing they get, especially if they have listened to the experts for a few years, is that their expertise is often just as good if not better than the people whom they thought knew it all. Indeed, the outcome of listening to experts is that one gains more confidence to make decisions after one realizes that most experts have about the same winning percentages as random trades or traders. This is not to say that the opinions and positions of other traders, particularly those that move markets like a George Soros or Jim Rogers, are not important. However, traders need to learn to trust themselves to make the decisions about their portfolios. Keeping one ear open to these gurus is a good idea, but the other ear should be listening for signs from the marketplace, where the information may not be congruent with these experts whom have their own agendas and needs to contend with.
Isolating Trend Direction
Isolating trend direction is best done through the use of specialized charts designed to eliminate minor corrections and deviations and only show larger trends. Some of the charts (such as the noise remove chart above) simply average prices to create a smoother chart, while others completely recreate the chart by taking only trend-affecting moves into consideration.
Prioritize. Some things are just more important than others, and mist things are not so important. Of course, we often behave as if everything was important and that can preclude us from making sound decisions. You cannot read it all, see it all, or know it all...but all you need. Most traders do not need to know everything under the sun, but just enough to gauge overall trend. Of course, trading strategy has much to do with the type of information one needs. Scalpers need to know more details, while longer term traders with wider stops just need the generalities since one or two news events are not likely to alter their trade entries or exits.
Creating a Usable Strategy
Although the ADX appears to work well on its own, market volatility can cause second-guessing and false signals. However, when combined with chart types that more easily highlight trends, it becomes a lot easier to identify profitable opportunities.
Turn off the TV. News may contain information, but it’s also entertainment too. Much of what we hear on the business news programs is opinion and spin, and just the guesswork of people with agendas. While an ear and/or eye tuned into Bloomberg TV or CNBC can be somewhat helpful if one trades news events (though the release of news is purposely delayed in the case of Bloomberg...so you’ll rent the expensive terminals), for most traders it’s more information to clog the filter. The other downside is that most business television doesn’t provide the sort of detailed analysis that is needed to make wise decisions. News is often propaganda designed to give the public comfort without giving them much else. The bottom line for most traders, is that it’s often better to trade without distraction-or little external stimulus- and just view the information on the charts, with alertness to changes in the general direction of economies. Most economies move rather slowly anyway in one direction or another, and for longer periods that most traders figure on...until one has been trading a for five years or so. Then one begins to realize that markets are cyclical and those cycles last a lot longer than we first comprehend when we begin trading.
Read everything with a jaundiced eye. The great thing about trading versus investing is that you don’t have to read reams of financial data produced by individual companies, as equities investors do. You don’t need to drill down to small details, and as a result, the odds of becoming confused by analysis, is greatly reduced. Most news is slanted in one direction or another, and traders need to parse what it is important relative to trends and momentum, not concern themselves with the bias that exists in the medium. Most traders are better off just focusing on the main news events...central bank activity, GDP, inflation, and unemployment and looking for a pattern over the longer term.
Stick with your plan, on every trade. The trades whom get distracted the most are those that are emotional, or unorganized. These types of traders tend allow fear to enter into their trading decisions, rather than the reason of analysis. They alter their plans constantly, often without sufficient justification. The strange thing is they often made the right decision at first, but then second guess themselves afterwards. In many cases, this is due to the distractions of too much information, and more specifically the opinions of others. Traders whom scour forex blogs looking for consensus to their positions or opinions about which way the market may or may not move, can become caught up in the emotion of the moment. Traders whom have a plan and use it, only altering or changing if it if significant data justifies a shift, are more likely to be consistently profitable. Market winds shift constantly, and traders need to learn to ignore what are usually short term changes in market temperature. The best way is to have a strategy and to follow it, and the only way to implement the strategy over many trades to put the law of averages in one’s favor...and that translates into ingnoring most of what one hears.
Think long term, and you’ll be around for the long term. The longer the perspective, the greater the probabilities that the trader will be successful. This is especially true if the trader has designed his or her trading strategy to withstand the market swings that occur within the longer frame. Moreover, traders with longer term positions can monitor the market for the big sign posts, and not concern themselves with every blip on their radar screens. This makes for more sound analysis and takes the stress out of managing information which can be like a constant bombardment to the shorter term trader whom must analyze every movement and market activity.