Simplification

My niece texted me yesterday that, “The market is looking good!! :)” This was the first time it didn't take any prodding or a helpful reminder from me. Over the holidays I helped her with an upcoming stock market class project she would have for her Spring semester. Before visiting I shipped her a copy of, How to Make Money in Stocks, and instructed her to thoroughly study only one chapter before I came down, “M = Market Direction: How You Can Determine It.”  If there was anything I wanted her to take away from our conversations it was a daily habit of knowing what the market is currently doing.

One of my main focal points was to streamline as much as possible a process that she could review the daily action in a few minutes. I hadn't realized how ridiculously busy and time committed she was and in addition I wasn't completely sure about how much energy she was willing to put into this right now so I stressed that she had a lifetime to study and hone her craft in the market, but if she could just find a few minutes a day to develop a system of analyzing the current market state it would compound and pay dividends later. If she committed to a simple daily process her knowledge would subtly increase and accumulate. So my first task was to make things as steam lined as possible.

To determine market direction I gave her a handful of simple tasks: Is price higher or lower than the 50MA of the SP and Nasdaq, is this MA rising, flat, or declining, and tally a running count of the number of stocks that have hit new All-Time-Highs. From this simple matrix I gave her a few suggestions on what to look for and some tips to gauge if the market is healthy for trading or not and left it up to her own observation.

Additionally this simplified her trading universe down to All-Time-Highs which would be a manageable list she could go through over the weekend when she had more time and look for emerging set-ups which for brevity were defined as  Darvas Boxes. Once she finds them she has her risk and position size calculator, a defined stop, entry and trade management instructions to follow.  

We discussed briefly the power of compounding and risk of ruin, and that the primary responsibility of any trader is to reduce draw downs through cutting losses.  Ultimately, however, what I wanted her to walk away with is simplicity and that through process, instilling proper habits, and constructing a solid trading methodology and plan that she believes in will lead to success. She isn't aware yet of all the pitfalls that await those who venture off into the murky swamps of trading without a proper guide or field knowledge so I'm hopeful by inundating her with knowledge that has been passed on by traders she'll start off on solid footing.

What I walked away with was that I had made things much too complicated, needed to streamline my own process, work on my bad habits, and deeply restrict my trading methodology and cut away the extraneous. But then again these are things I've known for some time which leads me to believe I'm still working on my niche and belief in following one system to mastery.   

Now I'm just waiting for the text, “The market doesn't look so hot here.”  

Ending this week here is a list of a rolling 4 week tally of All Time Highs and New Highs.  There is some overlap and some obvious discrepancies such as RSE which comes in with 18 and 14 respectively. I know I missed a day or maybe two while away with family and the New Highs is taken from TeleChart and has a volume filter that acts erratic at times.  There's some good set-ups beginning to emerge from these list.