If you have not read the first 2 Parts of this Blog Series or you fancy a refresher, there are links at the bottom where you can find these. I recommend reading those first.
Healthy and Constructive ‘Free Time’
I know I have written many times about this before but it is of utmost importance - especially if you are a Full Time Investor/Trader and you have the opportunity (due to lack of anything better to do and through pure habit and custom) - and I ain’t gonna make no apologies for writing it again. Sorry, that’s how it is (shucks, I just apologised……).
For me this is just so important - I cannot see how anyone can be fully productive and efficient with their time if all day is spent ‘Trading’ or on Investment activities. It is vital to take time out and go and do something entirely different - for me it will be digging around in the garden or suchlike in the Summer and just the usual chores of life like going to Tesco (other Supermarkets are available, although they are not 5 minutes from my door), washing the cars or going to the PUB or something (the latter is particularly unpleasant especially during a hot summer’s day when everyone one else is at work - it’s a dirty job but someone has to do it.)
Sat in front of a PC Screen looking at flashing numbers all day long cannot be good for anyone’s health and I can guarantee that if you want to wish your life away in a flash then this sort of addictive behaviour will soon have you 6 foot under. Believe me, the older you get the faster your time/life flashes by (and more pertinently each day you have remaining becomes marginally more valuable) so why on earth would anyone want to undertake stuff that makes this accelerating passage of time even faster? Stop doing it. Get strict with yourself - plan your day so you have Screen time but you also have Free Time - get out and enjoy your life and don’t p*ss it away (except or course in a PUB toiletry facility).
I am not being some kind of hippy life coach here or suchlike - there is method in my insanity. The key thing to realise is that you will make much better Investing/Trading decisions and act in a far more rational and calm way if you have proper Screen/Life balance - this is not a childish game and we must not treat it as such - this is serious hard work and we need 100% focused and dedicated commitment. When in front of the Screen or undertaking Investment Research or whatever, we need to be on our Top Form and able to think and act with utmost efficiency and effectiveness - if we are burnt out and knackered we will not perform in the cold and clinical fashion in which we must act.
Macro Economics is a very difficult area for Traders/Investors and there are different schools of thought with regard to how it should be addressed. The common one I hear (and very much the preserve of Warren Buffett - whoever he is) is that macro is irrelevant and Warren says he “spends an hour a year on Macro Economics and it is an hour wasted”, this is a brilliant sound-bite but I am not totally sure it is such great ‘advice’. Sure, it is easy to follow because it just means we can totally switch off to Macro but it is hard in reality to do this because even such simple things as The Fed cutting or raising Interest Rates can have huge impacts on the overall Stockmarket Indexes and of course on individual Sectors particularly Banks - so to just ignore it clearly won’t make for successful Investing/Trading.
There is a great recent example of how ignoring Macro won’t really help you much. Stocks at the tail end of 2016 and into 2017 have been absolutely on a tear with gains just piling up so that even the most useless Stockmarket Punter can buy a Stock and make money. It really doesn’t get much easier than this. However, without a good understanding of why this is happening and the Macro Economic drivers behind the rise it is very easy to sit out probably one of the best Rallies any of us will experience in our lifetimes - and I know this is happening to many people.
For me, once I twigged what was going on and how the Markets were just so bullish, I put some effort into working out why this was and instead of listening to all the woeful ‘analysis’ of Donald Trump and how like Hitler he was by LeftStream Media like BBC and CNN etc., I actually looked into what his Policies actually are and to figure out why Markets were loving his Presidential Win so much. I fully get it now and I wrote about this in a recent Blog called ‘Trumponomics’ (there is a link to this Blog at the end of this one.)
The other way I deal with Macro ‘Noise’ (and believe me there is a monumental degree of Noise produced by the Financial Media in particular which has very little real relevance) is to just ‘read’ what the Charts are telling me - this is why I am so obsessed by my Weekly and Nightly looks at the Index Charts - all the Information that is known to the Markets about Macro is captured in those wiggles - so this is one of the simplest and most Noise-free ways in which to figure out what is going on.
To a large extent for an Investor/Trader all that we need to do with regard to Macro Economics is look at the Charts of the Markets in which we are involved and see whether the Major Trends are Up, Down or Sideways - it really is that simple but we so often over complicate things. Once we know the direction of the Major Trend, we merely need to make sure we are Investing/Trading in the same Direction and if ever we wish to Trade against the Trend then we need to make sure we use Stoplosses and other appropriate Risk Management devices (Position Size etc.) - I learnt this Lesson in a very painful way over 2016 with my Hedging disaster.
On top of this, any Hedging or Directional Trading needs to be Chart-driven and based on clear, visible, evidence. Cut out the Noise - keep Charts clean and simple and do not over-complicate with the Indicators and Oscillators and suchlike - Keep it Simple. Regular Readers will know that I have a favoured set of Technical Tools such as RSI, MACD, Overbought/Oversold, Bollinger Bands and Candlestick Patterns etc. and that I use these robotically over and over on whatever Asset I am looking at (ok, I use some slightly differently on certain Assets). This is why I love the new Heiken Ashi Candles so much - they are about as Simple and Clear as you can get.
So in effect using Charts and Technical Analysis techniques can help cut through the Noise that arises from Macro Economics. In a similar way, we can use Charts to help us Invest/Trade huge FTSE100 Companies in particular. I often find with these huge Stocks which are nearly always from enormous Conglomerate-type businesses, there is just no point looking too hard at the Accounts and stuff - they are basically useless. First off they are massively historic - by the time the Accounting Numbers from various smaller Divisions within the Business have been collated together and passed up the Organisational Structure, they are just out of date. The other major problem is that they bear little relation to Reality in the Business - at each level the Numbers are massaged by Local Management to put a positive spin on what is produced and this just gets exacerbated as the Accounts are passed up the Organisation - what gets to Group and Headquarters Level is utter nonsense. Therefore using Charts can help us figure out if a FTSE100 Stock is going up or if it is best avoided. Cut out the Noise.
Noise in Chart Prices
Charting (Technical Analysis) is a discipline where Noise can be particularly obtrusive and troublesome. This is very much a case of ‘Less is more’ and the sheer breadth of Technical Signals, Indicators, Oscillators, Triggers etc. is immense and this in itself is a major part of the problem. Simply put there are just far too many options available to Traders/Investors in the TA sphere and the easiest error for anyone to make, particulary when inexperienced with TA, is too use too many Tools and just get yourself more and more consfused. There is no doubt that simplicity is the only way to be successful using Charting techniques and clarity is of the utmost importance.
Regular Readers of my Weekend Charting Blogs will probably notice that I have a fairly limited set of Indicators/Signals that I use and it is rare for me to introduce a new Tool - although I recently started using Heiken Ashi Candlesticks and the beauty of these is that they address the ‘Noise’ problem head on by giving much clarity and a fairly ‘Slow’ Signal which means that much of the day to day fuzziness of Price Action is removed. If you have not used HA Candles, I suggest you get straight onto them - I use the Daily but they can be used on any Timeframe and are one of the most useful TA things I have ever tripped over. The thing I particularly like apart from the simplicity and clarity is that they are good at keeping me in a Trade when other Indicators would be edging me towards selling - this is a huge help because keeping in a Trade and running the momentum is one of the most important things we can do.
At a guess I probably have about 12 or so Indicators in my armoury but in practice is is perhaps only 8 of these that I really focus on - these are Normal Candlesticks, RSI (Relative Strength Indicator), MACD (Moving Average Convergence Divergence), Bollinger Bands, Simple and Exponential Moving Averages and their Crosses, Heiken Ashi Candles. I have some other Indicators set-up on my ShareScope Charts but rarely use them - they are more as a final check or to try to clarify an uncertain picture from other Signals. I have a few like Stochastics set up on my screens but in reality I hardly ever use them - I could delete this (and probably should).
Of course the basic simple stuff like Uptrend Channels, Downtrend Channels, Sideways Channels, Support and Resistance are bread and butter of Charting and I use these all the time. I suspect that many users of TA Techniques could improve their Returns simply by culling all the useless Indicators they have set-up on their TA Software and just focusing on a handful of tools.
I suspect part of the problem many people have with over-complex TA is down to a search for perfection and a Quest for the Holy Grail. The sad fact is that there are no such Holy Grails (and in my view perhaps Heiken Ashi Candles are the closest you can ever get to such perfection) and people must get used to dealing with fuzziness and imprecision - it is all part of Investing/Trading and we need to accept that reality and work around it.
Let’s see what Pete Townshend of The Who has to say about Noise:
“He stands like a statue,
Becomes part of the machine.
Feeling all the bumpers,
Always playing clean.
He plays by intuition,
The digit counters fall.
That deaf, dumb and blind kid
Sure plays a mean pinball!
How do you think he does it?
I don't know!
What makes him so good?
He ain't got no distractions,
Can't hear no buzzers and bells.
Don't see no lights a flashin',
Plays by sense of smell,
Always has a replay,
An' never tilts at all...
That deaf, dumb and blind kid
Sure plays a mean pinball!”
Remember, Tommy is the Pinball Wizard because he cuts out all the Noise !!
If you are new to this Blog Series (or fancy a refresher), you can read Parts 1 and 2 at these links:
Information Overload Blog:
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
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