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  Category: Articles » Finance » Investing » Article
 

How Eating Bitumen Made Me a Better Stock Trader




By David Chandler

Stock market trading is a fascinating activity.

There are so many layers to it. And so many paths that you can go
down.

Soon after we first got interested in the stock market I became
captivated by technical analysis. I finally felt that I was in control.
It gave me great confidence to have all these tools to use.

We bought some expensive charting software and I started
playing with the hundreds of indicators that it contained. Exotic
sounding devices with impossible to understand mathematical
formulas.

So, armed with all these new tools, I was sure we would be
making a killing in no time. Because now we had science on our
side!

And so I spent night after night, weekend after weekend trying to
understand them. Backtesting. Trying one and then another.

But still we struggled to pick the winning trades.

I can remember buying this add-on to our software that gave us
even more indicators. And I was convinced this would finally make
the difference.

So I tried yet more indicators. Using different settings and
different combinations.

But success still eluded us.

And it took us quite a long time before we understood why.

But before I explain what we discovered, let me tell you about
eating bitumen.

My office is close to home. So some years ago I decided it was silly
for us to have a second car. And so I traded it in and bought a
scooter.

Now the only real problem with scooters or motor bikes [apart from
getting wet in the rain] is that you are fairly likely to get hit by a
car at some point!

It just stands to reason.

So I am always careful to watch cars to see which way they
indicate they are going to turn or whether they are stopping.

But this one day I was in a bit of a hurry.

And as I approached an intersection a car was parked at the stop
sign on my right. I was going straight through and the driver was
indicating to turn left.

[At this point I should remind some of our overseas friends that we
drive on the left side of the road!]

So I knew it was OK for me to keep going straight through the
intersection. Or so I thought!

Next minute I am slamming on my brakes as the car accelerates
across the street immediately in front of me. As my scooter hits
the fender I go flying across the front of the car and land on the
pavement on the opposite side.

For anyone who has experienced such an event you will know
what I mean when I say that it was like the whole thing happened
in slow motion. Quite weird!

I can remember looking at the car as it headed for me and not
believing that this was really happening.

Because I was convinced it was going to turn left. The driver had
indicated that he was turning so what was he doing on my side of
the road?

But there he was. I couldn't believe my eyes but eating bitumen
convinced me that this was indeed reality!

Ever since, I don't trust car indicators. Instead I have learned to
look at the front wheels. Because this is the true indication of
which way the car is actually going to go.

And you can't rely on looking at the driver, even if you can see
them. Because they often don't seem to know where they are
going, either!

But the wheels don't lie!

The car can only go in the direction they are pointed.

Now what on earth has this got to do with what I was talking
about before?

You remember I was telling you about the problems we were
having with technical indicators? Well what finally dawned on us
was that we were not taking enough notice of price action.

And so we started to study the chart before adding any indicators.

And suddenly we saw what was really happening. It was like
looking at the car's wheels instead of its blinkers.

You see, technical indicators are just what they say they are -
indicators. Not reality. Not price action.

But an interpretation of price. A filter.

And so you need to look at a stock's price chart on its own to get a
picture of what is really going on.

This is not to say that technical indicators are not useful. But the
critical thing is to only use them after you have analyzed price
action. Not before.

Just remember - the wheels tell the truth!

The above comments are offered for educational purposes only.
We are not providing you with financial advice. We are simply
sharing with you what has and hasn't worked for us personally. If
you wish to trade or invest in the stock market you should obtain
advice from a registered licensed advisor.
 
 
About the Author
David Chandler
http://www.stockmarketgenie.com
For your FREE Stock Market Trading Mini Course:
"What The Wall Street Hot Shots Won't Tell You!" go to: http://www.stockmarketgenie.com

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