“A man with a watch knows what time it is. A man with two watches is never sure.” that’s Segal’s Law.
Successful trading comes from being able to make decisions with imperfect information. However, like the man with two watches, we often try to look for multiple indicators to confirm our decision before we make a trade. After all, we want as much going for us as possible. Yet, waiting for everything to be aligned in order to make a trade, means that you will most often be either wrong or late.
By the time everybody agrees on anything, it is either wrong or it has already happened. As an example, let’s say we put 100 people in a field on a hot summer day with the sun beating down on them and not a cloud in the sky. Then, let’s ask all 100 people, if it is going to rain - with not a cloud in the sky, only a few if any of the 100 would predict rain. Let’s say a few clouds fill the sky and we ask the same group if it is going to rain. This time a few more people are likely to predict rain. Now, let’s say that the sky fills with dark clouds. When we ask the same 100 people if it is going to rain, most will say it is going to rain. However, the only way to get the entire group to agree that it is going to rain is if it is actually raining and they are all getting wet. This is how decision making in futures trading works. If you wait for perfect confirmation of what you believe may happen, it will have already happened.
In the case of trading, by the time everything is aligned to confirm your trade, you will either be wrong or too late.
Additionally, looking for more information, like the man with two watches often only serves to confuse you in your decision making. I have seen trader’s charts that have so many indicators and moving average lines on their charts that it is hard to see the price bars. I guess the theory is that if one indicator is good two, three or twenty must be better.
Unfortunately, nothing could be further from the truth. It is for this reason that I coach traders to concentrate their focus on one timeframe chart in their trading. I have seen traders successfully glance at other timeframes for context, but constantly moving your attention from one timeframe to another and one indicator to another will only result in your being confused.
The essence of successful trading is learning how to make decisions in a structured way being conformable with the fact that no matter how advanced you become in your trading, you are still going to have to make your decisions using imperfect information.
Wishing you success in your trading,
Copyright © 2009-2011 by Jeff Quinto, all rights reserved
Jeff Quinto is a 37 year veteran futures trader. He has been a member of the Chicago Mercantile Exchange and the Kansas City Board of Trade. He has been designated a Market Education Speaker by the Chicago Mercantile Exchange. Jeff coaches traders from around the world in his Professional Trader Mentoring Program. Jeff’s monthly e-mailed newsletter is available free of charge by visiting his website at www.ProfessionalTraderMentoring.com.
