I used to trade in a day trading office with several dozen other traders. In a group that size, you can find all kinds of personalities and trading types. Two guys in particular were off the chart analytical, pardon the pun. Each had several computers running calculations on various algorithms, and their charts had almost every possible indicator applied to them. I could hardly see the price bars for all the other moving averages, Bollinger Bands, stochastic and Fibonacci retrace zones. It looked as if a small child had taken markers and drawn all over their monitors. Needless to say, these traders never made any money. In fact, they hardly ever pulled the trigger on anything because of their paralysis by analysis. Too many factors had to line up for them to put their money at risk to turn a profit, because they were waiting on the “sure thing.”
No matter how successful your trading becomes, you will not ever have the guarantee of having only winning trades. You must focus your efforts on two things: finding the best setups, and executing your trading plan. Your success will depend on how well you can do these two things rather than how well you can locate the next magic bullet. Take good chart patterns and hit those stocks as they begin to move. Place a stop-loss order in case you are wrong and then let the law of averages work in your favor.
Amateur traders become successful when they stop seeking the perfect indicator and begin to focus on managing their trades better. Make it a point not only during this earnings season, but for the rest of 2005 to do what you can to manage your trades better. Keep stops in place, and move them up as your stocks show you a profit. Allow your losing trades to trigger your stops; don’t try to dollar cost average and hope. Your success won’t boil down to how many times you were right. Your success will depend on making as much as you can when you are right, and losing as little as possible when you are wrong (and you WILL be wrong!). Don’t expect to find the golden arrow for your trading success – it isn’t out there waiting for you! The sooner you are able to look inward at your tendencies as a trader, the sooner you will see your account getting larger.