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Don’t Wear Sneakers With That Little Black Dress…

|Includes:DIA, IWM, QQQ, SPDR S&P 500 Trust ETF (SPY)

When I was a kid if I needed to research something for a school project I would take out one of the alphabetical encyclopedia Britannica’s from the book shelf and look up said paragraph. Back then information wasn’t readily available and if you wanted to know something you asked. Teachers would encourage us to ask questions with catchy phrases such as: “There’s no such thing as a dumb question”. These days that cliché is untrue. There are plenty of dumb questions.  Believe me I’ve heard them.

How things have changed…..nowadays there is TOO much information available that it’s difficult to know which resource to trust. The internet has made so much information readily available that it becomes questionable if it’s too much and even more importantly, is it reliable just because Wikipedia said so??

In fashion there is such a thing as TOO much. Some things are more intuitive than others. You don’t need Joan Rivers to tell you that it’s a “Glamour DON’T” to wear dark lipstick with heavy eye makeup unless you’re going for the Goth look, or too many accessories and bling with sweatpants. Some things are obvious (like don’t wear sweatpants after age 6) but many are not. Only those with the most astute fashion sense understand the nuances of it and have it down to a science.

In trading the availability and accessibility to the public of many different technical indicators can lead to making obvious “fashion faux pas”. There are websites, trade shows, and seminars geared specifically toward feeding the public information and tools. The problem in many cases is that these resources (accessories so to speak) are not being used properly. Just like wearing brown with black. There is simply too much information or information that is contradictory available.

Many traders execute what is referred to as “stacking indicators”. They mistakenly use the tools to develop a trading methodology and in reality many of the indicators are redundant or simply don’t work together. In other words, they don’t match. When the indicators don’t line up to execute trades nothing gets done and the effect many times is “paralysis by analysis” or even worse: loss of capital.  For instance, Bollinger bands and stochastic work well together in an overbought /oversold approach.  Adding an RSI is simply redundant and not helpful. Utilizing simple moving averages with those indicators “clashes” and will create incompatibility in the analysis as it measures trend, which conflicts with an overbought / oversold method.   

The first step is to have a trading strategy and then incorporate the tools to implement the process….not the other way around. (Buy the dress first then find the shoes and belt to match). First you need to decide if you are dressing for a black tie event or for a yoga workout and then pick the accessories that properly go along with the outfit.

Find a mentor (a stylist so to speak) to guide you through the process. While seminars and trade shows are great resources there is nothing like truly being trained by a successful and knowledgeable person to become successful.

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Stocks: SPY, IWM, DIA, QQQ