Investment Consulting

Thursday, August 15, 2013

Planes, Trains, and Automobiles

Planes, Trains, and Automobiles

…One of everybody’s favorite John Candy movies of all time. When I was a teenager, I had a very small part in another one of his movies and got to meet him. He was a big funny guy just like I expected. As funny as the movie is, there is a real story in it that all traders and investors need to be aware of. I go through periods where I travel quite a bit through air, cars, and occasionally the Tube in London and elsewhere. Air travel can be tricky and draining because of airports and weather you and I have no control over. Being an Executive Platinum member, knowing all the short cuts, and tricks with lines and special seating, the experience can still be long and draining at times. Overall, I do enjoy air travel. Sitting back with no access to a phone is quite relaxing. Driving to your destination is another story. Long airport lines are replaced by stand still traffic, road raged drivers, and icy roads if you live in Chicago like I do. You are also now the pilot so there is much more responsibility than flying. However, heated seats and a good sound system make driving a pleasure these days. Train travel is something I have not experienced much but when I do, it is typically a packed tube in London or the subway in Manhattan. Wherever you’re going, whether your destination is Florida or the North Pole, a plane, train, or automobile can get you there just fine.

Just like travel, there are many ways to reach your desired destination in trading. All the information we needed to identify and take advantage of this low risk and high reward opportunity is clearly seen with price and price alone. Ultimately, all that matters is knowing where the significant buyers and sellers are in a market and price does a fine job of showing us that. Some traders however are either not comfortable using only price action analysis or they desire more confirmation to take a trade. For this, people tend to use indicators and oscillators as the confirmation crutch.

The most important point here is that while indicators and oscillators can assist in ones “comfort” level, these can’t be used as primary decision making tools. These tools don’t know anything about supply and demand and don’t consider it. It’s not that they are broken or don’t work. They are mathematically generated lines on your chart. The math is always correct. Whether that math leads to profits or losses in your trading account is the question most novice traders never ask and it happens to be the only question that matters. As John Candy showed us, there are many ways to reach our destination. Trading is only slightly different. While you can use indicators and oscillators as confirmation tools, if you are NOT filtering these buy and sell signals through real demand and supply levels, you are traveling east and west, trying to reach that North Pole, good luck with that. If you must use indicators and oscillators, go ahead and use them. Again, just make sure you filter those signals they spit out through proper supply and demand analysis.

Planes, Trains, and Automobiles 

Sam Seiden 

Martinez Global Inversiones

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