ForexSpirit

Let’s start off with a little parable that aims to teach us something about life:

A boat docked in a tiny Mexican village.

An American tourist complimented the Mexican fisherman on the quality of his fish and asked how long it took him to catch them.

“Not very long,” answered the Mexican.

“But then why didn’t you stay out longer and catch more?”, asked the American.

The Mexican explained that his small catch was sufficient to meet his needs and those of his family.

The American asked, “But what do you do with the rest of your time?”

“I sleep late, fish a little, play with my children, and take a siesta with my wife. In the evenings, I go into the village to see my friends, have a few drinks, play the guitar, and sing a few songs. I have a full life.”

The American interrupted, “I have an MBA from Harvard and I can help you! You should start by fishing longer every day. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat.”

“And after that?”, asked the Mexican.

“With the extra money the larger boat will bring you can buy a second one and a third one and so on until you have an entire fleet of trawlers. Instead of selling your fish to a middle man, you can then negotiate directly with the processing plants and maybe even open your own plant. You can then leave this little village and move to Mexico City, Los Angeles, or even New York City! From there you can direct your huge new enterprise.”

“How long would that take?”, asked the Mexican.

“Twenty, perhaps twenty-five years,” replied the American.

“And after that?”

“Afterwards? Well my friend, that’s when it gets really interesting,” answered the American, laughing. “When your business gets really big, you can start buying and selling stocks and make millions!”

“Millions? Really? And after that?” asked the Mexican.

“After that you’ll be able to retire, live in a tiny village near the coast, sleep late, play with your children, catch a few fish, take a siesta with your wife and spend your evenings drinking and enjoying your friends.”

There is a pretty straightforward moral that normally goes along with this story: know where you’re going in life because you might already be there.

If instead you look at this story through a trading filter you come upon some certain other interesting thoughts.

One that springs to mind for me relates to the use of technical indicators.

Think back to the first time that you ever opened a charting program. What did your first chart look like?

More than likely it just consisted of price; a lone, squiggly line that moved up and down, seemingly at random. Your first chart was naked of any technical indicators.

You might have done a bit of reading and knew about support and resistance levels. You decided to try and highlight some of these areas on your chart by adding some horizontal lines.

Next you tackled trendlines. Soon after came moving averages, MACD, RSI and a slew of other technical indicators, the majority of which were developed for usage in the equities market, and you alone knows why you’re trying to use them to trade currencies.

If you survive drowning in this sea of technical indicators you slowly come to realise that less is more. You start to ween yourself off looking for newer and better indicators. You take a hard look at the indicators you currently use and throw away those that don’t make the grade.

Your charts begin to look less and less cluttered. Simplicity works. Your mind becomes less foggy and you are better able to process the information that the market is telling you.

Before you know it your chart will look awfully similar to what it looked like the first day you ever saw a chart: a squiggly line that is price, maybe a few resistance and support lines, and if you just can’t do without them, trendlines.

You’ve come full circle.

Little did you know that you were already where you needed to be with regards to technical indicators when you first started out.