Investment Tips: Ridiculous rituals can’t help you win in the market, but the basics can

Many people enroll in technical analysis training programs and are eager to learn new methods that can help them pick the magic stock, get in on that big trend, or get out just before the peak of a major move.

They tie in with the method demonstrated by the facilitator and pay particular attention to the way the method is to be applied, all the while keeping in mind the end result – that’s always the win.

Yes, there is the stop loss to deal with the unfavorable outcome and all that is for others. “Once I know this method,” they say to themselves, “all my trades will hit their profit targets.”

There is another class – the reader. They used to read books, now they read small, short essays on the Internet. After all, life has become faster, where is the time to read a book of a few hundred pages. I can sum it all up in a two-page report with two illustrations thrown in. And if I read about five of them, dammit, I’m already well educated or actually well read!

The problem with the above two groups – who want to be traders, mind you – is that they are doing what is considered “necessary action” but without any understanding. The focus is on achieving the end result. This is very similar to us in real life, during a puja or a fast or when visiting a temple, church or mosque.

We all go through the moves because we think that’s the deal. We all go through rituals of offering flowers, candles, or chaddar, believing that we have made our contribution. And when we don’t do all these things, we feel guilty. We are even made to feel guilty about it by those around us, young or old.

This is the classic case of ritual practice. Not knowing the philosophy behind the rituals leads to superstition. Interpreters of sacred books will warn us of dire consequences here and hereafter if we don’t “DO” some things in some way.

In the same way, traders become superstitious too. Some of them have ridiculous rituals that they believe are necessary to win. Some of them go to extreme lengths to avoid something in order not to lose. A typical translation of this into trading actions is taking profits early or avoiding losses.

Understanding the method means understanding the price action. How many people really spend time in a training program trying to understand basic price action? What is trending? Why are there traffic jams? Why should prices go down? Why does a trendline work? What is the meaning of the Fibonacci retracement and why does it work? Is there a reason the Bollinger should rise and fall, and if so, do I know it?

Oh! I find that too many of today’s equity tech leaners are more interested in the bottom line, or the bottom line, than focusing on brushing up on their fundamentals. They all want to do a doctorate without wanting to graduate from school or university. They believe that school learning with a quick glance at a PhD book or its précis on the internet is enough to keep their education up to date.

They feel they can ditch many of the basics of price action analysis in favor of a few, explainable, computerized methods and expect to get great results. They will from time to time. But long-term success? No chance.

Price action is at the root of all success in the markets. Whether your approach is technical or fundamental doesn’t matter. If you don’t invest your time in understanding market price behavior and continue to invest it every day, the market will beat you every day, every year.

At every opportunity, go back to your basics and relearn them many times. Then the chances of not being beaten by the market would increase exponentially. Investment Tips: Ridiculous rituals can’t help you win in the market, but the basics can

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