There’s a sure-shot way to deal with noise…
…just shut your ears.
Yeah, the best ideas in the world are – simple.
Let’s not complicate things, ok?
So, what kinda noise are we talking about here?
We’re not talking about audio, you got that right…!
The concept is related, though.
If you’re charting, you’ve dealt with noise.
Yeah, we’re talking about minute to minute, hour to hour or day to day fluctuations in a chart of any underlying.
While discussing noise, we are pointing towards relatively small fluctuations which generally don’t affect the long-term trend.
However, noise has the capability of deceiving our minds into believing that the long-term trend is turning, or is over.
Don’t let noise fool you.
When has the long-term trend changed?
When the chart proves it to you through pre-defined fashion. That’s it. You don’t let noise to get you to believe that the long-term trend has changed, or is changing. Ever.
You believe your chart.
Moving averages crossing over? Support broken? Resistance pierced? Trend-line shattered? ADX below 15? Fine, fine, FINE.
Take your pick. You have many avenues giving decent signals that the long-term trend has changed or is changing.
How about eyeballing? Works for some. Like I said, let’s keep this simple.
So let’s get noise out of the way.
Random numbers generate trends – you knew that, right?
You don’t need more.
Once you’ve identified a trend, that’s your cue to latch on to it.
We’re not talking about predicting here. We don’t need to predict. We just need to identify a trend, and latch on. That’s all. No predictions. Not required.
From this point on, two things can happen.
Further random numbers deepen the trend you’ve latched on to. You make money. Good.
Or, the next set of random numbers make your trade go against you, and your stop gets hit.
If your stop is getting hit, please let it get hit. Even that qualifies as a good trade.
You move on to the next trade setup, without even blinking.
What you’re not doing is letting noise throw you out of the trade by deceiving your mind.
So, here’s what you do.
You’ve id’d your trend. You’ve latched on. Your stop is in place. Now, don’t look at your trade.
That’s your call.
Don’t look at your trade till you’ve decided not to look at it. For the day-trader, this could be a couple of hours. For the positional trader, it could be days, or weeks.
By not looking, you won’t let noise deceive you.
If the trend doesn’t deepen, or goes against you, you lose the risked small amount.
Just remember one thing.
A loss has immense informational value. It teaches you about market behaviour patterns. It also highlights your trading errors. Many times, losses occur without any mistakes made by you.
That’s the nature of trading.
Ultimately, if the trend deepens, you’ll have made good money, and can then further manage your trade after the stipulated period of not looking.
This is the sweet spot.
This is where you want to be, again, and again and again.
Sitting on a large profit gives you room to play for more profit by lifting your stop and your target simultaneously.
To reach this sweet spot again, and again and again, you have to position yourself out there and appropriately, again, and again and again.
This is also the nature of trading.
Wishing you happy and lucrative trading!