Trader Tip: Can’t See the Forest because of the Trees One of the unique advantages we get here at Blue Point Trading, is that we get to see a lot of Trade Plans that traders submit to us to trade with us. Recently in reviewing these Trade Plans, I have stumbled on to an issue that is very common and thought I would rant a bit on it, so that we can all learn from this experience. The scenario goes a bit like the following:
A trader submits a very well thought out Trade Plan. It may have several pages of very detailed analysis and text, with a few charts. To then try to analyze what the trader is doing, can be very challenging. It should be said, that these kinds of traders have honestly spent a lot of time on the plan and very often are clever people. They have a great deal of ownership of the Trade Plan, which is good. When submitting the Trade Plan, often the trader is just looking for you to agree with all the good work they have done, and perhaps give them a few minor tweaks to perfect it. This is not to say that the trader is an arrogant “know it all,” just the opposite. They are very honest and engaging intellectual people.
So what’s wrong? It is a principle called, “Can’t see the forest because of the trees.” A Trade Plan like this goes a little like this:
|Time Frame||Indicators Used||Market Action|
|4 hour||RSI and the daily pivots (with lots of parameters)||Set the trade direction.|
|1 hour||Zig Zag indicator (parameters variable to market volatility. And just how is this done?)||Set the trade last swing high or low.|
|15 minute||Stochastic (with slow offset … huh?)||Creates the target Trigger entry zone.|
|5 minute||Find a DOJI pattern, that has 3 opposing colored bars.||Trigger the trade.|
If all the planets are in alignment (a lot of, if this and that but not this) take the trade. Set the Stop at the last Zig Zag high / low and the profit Target at the last resistance / support (not really defined). And what is the Profit Stop ratio? – Dunno. Hmmm … what could go wrong?
The reality in a Trade Plan like this, is that with all the “price derived” indicators, it is hardly better than a, “trade the DOJI” in the direction of a some moving average on a 5-minute chart. This is a Trade Plan that most likely will not work well, even if you could execute it – which is another issue. There is not even a clear Stop or Target point. With all the indicators, there is enough wiggle room, that the trader could talk themselves into a long or short at almost any point. A Trade Plan that, “can’t see the forest because of the trees.”
To try to explain this principle to a trader can be difficult. After all, the trader you are working with is not stupid. The trader also, has great ownership in the Trade Plan and will not let go easily their ideas. The resistance to change is quite high. My typical approach is try to get down in the weeds of the Trade Plan to begin to show them, that in fact their Trade Plan is quite vague, undefined and lacks a broader view of the market action. Often using examples. But as they say in the great American west, “you can lead a horse to water, but you can’t make them drink.”
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