Occam’s Razor
“Entities should not be multiplied unnecessarily.”
A more popular expression of Occam’s Razor:
“If you have two equally likely solutions to a problem, pick the simplest”
There are many ways to invest in the market. There are many ways to read a chart. There are many ways to profit from the market. Many employ various strategies and profit. But when it comes to execution and arriving at the decision to enter a trade, people employ myriad methods to rationalize their trade.
Fundamentally you can look at the company and determine whether or not it is a winner or a loser. But fundamentally Lehman looked real good but the books were cooked. Fundamentally, and historically Lehman was a sound investment.
Long term investments can be profitable. However, technically played swings and or scalps can reap higher profits than long term investments. Many people try but few really get there. In the end they over trade and lose many of their gains if not all. At the end of the year, many are satisfied with 3% gain. Obviously there is an issue with their execution and selection of their trades.
Occam’s razor would have us remove all unnecessary theories that just complicates your decision making. And one of the simplest ways you can trade is to note accumulation and distribution. Markets move in cycles. You would be hard press to find a honorable professional analyst who would contest this notion. Significant price movements upward require the market to accumulate. Significant downward price movement requires the market to distribute. You don’t need to have super fast internet access to get a head of the market. You don’t need to hack into the market’s servers to take advantage of these movements. You don’t need a super algorithm to exploit ticks. And you certainly don’t need insider information.
What you must simply understand is that any heavy buying and or selling will propagate in your charts. There is no hiding it. The difficulty comes when people read charts. They fail to employ comparative analysis. Comparative analysis allows you to determine what the long term accumulation/distribution (accu/dist) targets are, and how they relate to the intermediate and current trend.
You don’t need to employ fibos, pivots and other technical studies. The price action alone demarcates the levels of interest that will act as support and resistance. Price levels are simple to identify. Price levels are easy to understand. But because of long history of mis-information. People consider it too easy to be true. It is difficult to understand why people enjoy complicating something that is so simple.
Generally, the target of accumulation is the last lost support and overcome the previous high. Generally, the target of distribution is the last strong support and overcome previous lows. On the way up or down, when encountering a strong level of support or resistance, it will fail on the first try. Many books you read attest to these simple rules.
How do we complicate it all? We employ guru tools. Guru magic chart patterns. We employ 16 redressed indicators. There really isn’t anything wrong with many of these things. The only thing that is wrong is that we resign to them instead of fully understanding how the market simply moves. Yes the common indicators are not so flashy and they have limitations. But the limitations to those indicators vanish when you learn to read them across complimenting time frames. But a sound understanding of accu/dist, you can do away with indicators entirely, because you can relate the price action.
This requires study. And it requires you to empty your cup. Simplify.