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Ever drive a bumper car at an amusement park? Remember how the bumper car headed off in one direction until it bumped into what it deemed an immovable object and then backed off in a seemingly random direction. I’ve met investors whose methodology resembles something similar. 

Every experienced investor develops a personal trading routine – whether or not they acknowledge it or write it down. The secret of successful investors, however, is that they weave together a string of powerful habits and routines, eventually constructing the equivalent of a durable investment cable. Their routines become a roadmap of checklists executed each day, week and month.  Just as every winning sports franchise pre-thinks and practices different scenarios as an essential caveat to their game plan, so must investors pre-think their routines and practice them regularly. Successful investors understand this.

Most people call it Technical Analysis, but I prefer to think of it as “Visual Analysis”. Picture it as a tree with many colorful branches. I gravitated towards Technical Analysis many years ago because I came to realize that I was visually wired as an individual and I appreciated the gigantic amount of data and stock market insights that could be represented in these compact charts.

As I look back over my journals, I realize that an important “passage” occurred about a decade or so ago. The charts and my notes in my trading journals transitioned from monochrome to multi-colored as I began to print colored charts and then annotate many of them using multi-colored pens. Even my written journals utilized highlighters of various colors. Not only did I improve my analysis, but I can say without a doubt that it enhanced my intuition, too. Both of these contributed to amplifying my bottom-line.

As I consider the world around me, it’s obvious that many others came to realize the infinite benefits of using colors a zillion years before I did. The electronics industry color codes components such as resistors, capacitors and inductors. Artillery shells are color coded according to their pyrotechnic contents. Navigation lights too, not to mention many currencies of the world.

I have joined the crowd and I’m better for it. Besides the obvious jokes about living life in black and white, I’ve found that by becoming more “color oriented”, my investing world is actually more fun.  The more important benefits, however, lie in the enhancement to my trading intuition. It is not my objective in this blog to convince you the reader of the powerful benefits of acknowledging and embracing the role intuition can play in your success as an investor. I’ll leave that to Amazon.com where you can survey many highly rated tomes on the subject.

My objective is merely to give you some examples of how I’ve incorporated colors into my own trading and to encourage you to think of opportunities that might exist in your own investment life to embellish some of your tools and analysis.  Some basic examples of what I mean are the three charts below.

My intuition knows instantly that when I’m reviewing a green chart, I’m focused on trends. If the chart is brown, I know immediately that it deals with price relative and money flow; if it’s a blue chart, it’s momentum. I also use a similar color scheme for different timeframes. Whether the charts are long term, intermediate or short-term, each one is defined by both its colors as well as its labels. There are many other ways to put color to good use in your trading.

Remember the old cliché  “time is money?”  Time is indeed a precious commodity, and I’m always looking to streamline my routines without diluting them. Color gives me exactly that. The additional layer of colors is wonderful in its simplicity because it offers up a personalized language of analysis atop my charts. Colors embellish my charts, allowing me to see market changes sooner, making clues clearer and convincing me to pull the trigger with greater discipline and comfort. 

Do you have unique ways in which you’ve personalized the language of color in your analysis routines?  Perhaps other visual investors would find your ideas of value in the comments below.

Trade well; trade with discipline!
-- Gatis Roze

Highly educated people are, for the most part, trained to ask the question “Why?”  Engineers, accountants, doctors, lawyers and the like invariably want to know all they can about why certain things happen. The assumption is, of course, that knowing why will help you do the right thing in your career domain and therefore get nicely rewarded for it.  

While this strategy may work well in one’s particular profession, the stock market domain is completely different. In the financial arena, one is not necessarily going to be rewarded just because they understand the underlying reasons why something happened. To the contrary, pursing rational answers within a seemingly whacky market may generate an academically satisfying list of explanations but without financial rewards. An investor’s pursuit of “why” may waste precious time and energy when the focus instead should really be on identifying the “what” and then following up with the appropriate action. 

For an investor, the market only rewards one for knowing what is happening at any particular moment and for then acting upon those insights. Yes, you may find the “why” to be intellectually satisfying, but unfortunately she is the one who is always late to school, allowing the “what” to score higher grades!

Once you can embrace the belief that your rewards lie in demanding to know what is happening, you will gain a measure of control and peace over your all-important “investor self”. Only then will you be allowed to proceed further up the mountain of enlightenment and profitability by now wrestling with probabilities versus predictions. 

Many professionals, such as engineers, know that if they apply solution A to problem X, a good outcome can be predicted with near certainty. When these same individuals bring this sort of predictive thinking to the markets as recreational investors, the results can be frustrating. The stock market game is one of odds and probabilities. It’s a complex auction arena fueled by millions of different investors, voting with their money based upon their unique emotions, needs and beliefs. Even the most sophisticated algorithms can’t predict how particular individuals will react. Having said that, a carefully designed trading methodology, deployed in a disciplined consistent manner, will shift the probabilities significantly in your favor. The more appropriate the methodology, the higher the probability of profits. 

Once you are focused on the “what” and have accepted the reality of probabilities, your final quest is to embrace change. The realities and consequences of investing at today’s fast internet speed requires both retail traders and recreational investors to resign themselves emotionally to change. They must be willing to tolerate adjustments in their methodologies and to acknowledge that busted chart patterns and failing indicators are part of the investing landscape these days. 

If you think it’s difficult selling a stock you’ve fallen in love with, consider the sizeable struggle you endure by conceding that your beloved trading methodology – the one  you’ve spent years building and learning – must now be changed as well. You must recognize that this will require immense emotional and intellectual energy. Are you willing to change and do what it takes to pull profits out of the market?

Bottomline: Highly educated people must learn to overcome their need to know the cause of things.  Instead, they must learn to focus on clearly understanding what is happening and then having the discipline and risk management skills to act decisively. Retail traders and recreational investors alike must embrace and trade the actual market they are given, not the market they hoped for or the one they believe they are about to figure out. 

If you are an educated professional and you want to succeed in the stock market, you must be willing to jettison those portions of your career training that are at odds with investing. Instead, you must:

• focus on what is happening and not why it is occurring
• deploy probabilities over predictions
• embrace change and be willing to make necessary adjustments

Trade well; trade with discipline!
-- Gatis Roze

When I was a graduate student in business school, I had the privilege and good fortune of watching John Elway play football as the quarterback for Stanford and seeing him around campus in a multitude of different situations. I was struck by the fact that, even as an undergraduate student athlete, he stood out as exceptional. Whether in the weight room or in the library at midnight, he was cultivating prerequisites that would significantly increase the probability of his success both on the football field and in the future as a successful businessman. He was all about commitment, discipline, hard work and focus. The results speak for themselves. As I heard him say years later, “The secret of success is that there is no secret.” 

Michael Jordan is probably the greatest basketball player I have ever seen.  He wrote a book titled “I Can’t Accept Not Trying:  Michael Jordan on the Pursuit of Excellence” which lays out his rules for success. This book is of interest to us as traders even though we pursue excellence in a totally different vocation. The parallels between Michael Jordan’s success and our investing world are uncanny. 

I trust you read last week’s post, Part I on “The Art of Selling Well”. Those rules provide the foundation for what I will describe this week. I would hope that most investors reading about last week’s basic selling system “Three Descending Peaks” came away saying “I can design a better selling system than that.” My answer to you is:

• Yes, you can.
• Let’s do it!

My own selling system is a bit more complex and is based on technical clues piling up as well as on my own intuition, garnered from many years in the market. I feel I’ve earned my “selling badge.”