Saturday, September 5, 2009

The Scourge of the Holy Grail

If you’ve been in the trading business for at least a few months, or have read a few trading books, you’ve come across something called “the search for the holy grail”. It is the search that many of us (all of us?) take in our trading careers to find that elusive set of indicators, or trading strategy, that pretty much guarantees we’ll have far more winners than losers, and that we’ll have nothing but happy endings at the end of our workday….. if we just follow the lead that these indicators give us. The search begins very early in our careers.

Why do we do it? Because this is about real money. It’s not a mindless video game we’re playing on our computer. “Afterall, how can a new trader in this business be expected to just latch on to a strategy and just make money from the start?”, we think to ourselves. Haven’t we all heard those dreadful statistics about success in this business beaten into our brains more than a few times? You know, the idea that 95% of us will turn out to be nothing but losers and that only 5% will ever make it as full time traders. Pretty daunting isn’t it? So you think to yourself, “Yea, I’d better get onto that search and start it right now. I’m no dummy.”

What else perpetrates this idea of the existence of a holy grail?
1) As new traders we are conditioned to think there are people out there who are consistent winners day after day, who make more in a week than we make in 2 months at our 9-5 jobs. It is implied that these people have found some sort of grail like trading system, and for us to achieve at such a high level we need to find one too.

2) We see the ads in the back of the trading magazines where various plans and strategies are sold. Some cost as much as $10,000. There’s one guy out there who even boasts about having the most expensive plan available, $14,000 I believe. Many go for $2-6,000. Then you can get on the internet and find many times more, usually costing from $49 to $900 or so. Is this the answer? To send a boatload of money to someone whom we assume is an “expert” and thus making us only a credit card number away from impending maximum success too? Almost all these plans are marketed as being relatively simple, and easy to implement Thus anybody with a computer is only weeks away from being a successful trader. Just buy and sell when the little arrows appear on the screen.

3) How about all those indicators out there? You can go to the user forum of about any charting service and download 50 indicators, on top of all the canned ones they include in the package. Some are variations of the common indicators, and some have pretty exotic names. There are also many indicators out there we are told are “proprietary” with their owners, thus not available to the unlearned masses. Nobody would make an indicator or strategy proprietary unless it were close to a sure thing, right? And that’s just one source. There are undoubtedly 100-200 more indicators out there. With every issue of Technical Analysis of Stocks & Commodities magazine there is usually another indicator added to the list. There’s a whole cottage industry out there of programmers who create more and more ways to torture a Open-High-Low-Close bar and sell it to the grail seekers for big bucks. So is it our job to sort through the hundreds of indicators and find just the right combination? Or do we tweak this one and that one and then add them together to make the “can’t lose” system we all want?

4) How about all those advisory and newsletter services? There are many people willing to tell us what the “key levels” will be tomorrow. Should we just wait for the email and then act when told so? Or we can join a live trade calling room for “only $300 a month”. Why not write a book to become an “expert” and then start a newsletter service based on your newfound fame and instant credibility? Is subscribing to a few of these the key to my success? At $35 a month times 662 subscribers…well, these guys must certainly know their business, right? Right?

If successful trading were a matter of spending a certain amount of money with a trading systems vendor, and spending a few months to learn that system, wouldn’t just about everyone quit their job and become traders? Layoffs…..recessions….who cares? Don’t we all want to live the perceived glamorous lifestyle of the successful trader? And if one indicator gives me some good information, won’t adding 3 or 4 more give me unbeatable information?

Wait a minute, you think. If those plans selling for a few thousand dollars were really as good as the advertisements said they were, why not sell them for much more? I see a testimonial where a user said he made $1,000 in one day….yet the plan is available for “only” $2,000? Maybe it’s just me, but if I had a near “sure thing” plan I’d sell if for 100 times what you can make in one day with it. I may not be John D. Rockefeller, but I’m not stupid either. If you owned a successful business, would you sell it for just 1 or 2 times annual earnings? I think not.

The fact is, all those plans do work…some of the time…for some of the users. And for some people, the plan works the majority of the time. The vendors know all this. This is a numbers game for them too. The legal disclaimer you see posted with every plan protects them. They know that once you give up on this particular indicator or strategy there will be plenty of people to stand in line to buy the next one. The allure of trading success is just too great to ignore their sales pitches. (continued…)


  1. YM- that is a good stuff. But, I am 100 percent sure new traders will skip over these deep thoughts very quickly so they can get into the trade2win or other forums and continue searching for the holy grail.

    I was guilty of it myself until few years ago when I realize that there is "no holy grail"

    If this will help, here are my setups...

    One monitor - 2 windows

    1. Intraday long term chart/ma/volume indicator
    2. Intraday short term chart/ma/volume indicator

    My trading now is based on intraday long and short time frame charts, two volume indicators plus another indicator on the price chart that shows me good odds that pullback is deep enough to get into it. That is it it. So, as you said - Price and Volume.

    Next money management rules, which is 80 percent of the whole game

    It took me many years to get to that point and still I make major mistakes, heck, I have committed a major sin this Thursday, went against everything I put together and ef course lost money. Reverse the trade, took profits to be break even and entered another trade to bring home nice large bacon.

    So, to new traders, if you fall down, do not forget to get up and try again...

    On the lighter note, have a geat weekend!...I and my misses are off to Vegas to forget(hopefully) and replanish...

  2. Thanks driven. I agree that most new people will gloss over it. It's just part of the process. We all have to prove it to ourselves.

    I like your simple setup. A new person may worry that simplicity leaves too much out of the picture and thus increases the chance of a misfire. But experienced traders often learn that leaving out a lot of "stuff" actually improves clarity. Have fun in Vegas

  3. Hi YM,

    Can you please show me a sample chart about your No.1 rule Re: "In between this lines, I don't trade". Your kind response will be highly appreciated. Thanks.


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