How Eating Bitumen Made Me a Better Stock Trader

Stock market trading is a fascinating activity.

There are so many layers to it. And so many paths that you can go down.

Soon after we first got interested in the stock market I became captivated by technical analysis. I finally felt that I was in control. It gave me great confidence to have all these tools to use.

We bought some expensive charting software and I started playing with the hundreds of indicators that it contained. Exotic sounding devices with impossible to understand mathematical formulas.

So, armed with all these new tools, I was sure we would be making a killing in no time. Because now we had science on our side!

And so I spent night after night, weekend after weekend trying to understand them. Backtesting. Trying one and then another.

But still we struggled to pick the winning trades.

I can remember buying this add-on to our software that gave us even more indicators. And I was convinced this would finally make the difference.

So I tried yet more indicators. Using different settings and different combinations.

But success still eluded us.

And it took us quite a long time before we understood why.

But before I explain what we discovered, let me tell you about eating bitumen.

My office is close to home. So some years ago I decided it was silly for us to have a second car. And so I traded it in and bought a scooter.

Now the only real problem with scooters or motor bikes [apart from getting wet in the rain] is that you are fairly likely to get hit by a car at some point!

It just stands to reason.

So I am always careful to watch cars to see which way they indicate they are going to turn or whether they are stopping.

But this one day I was in a bit of a hurry.

And as I approached an intersection a car was parked at the stop sign on my right. I was going straight through and the driver was indicating to turn left.

[At this point I should remind some of our overseas friends that we drive on the left side of the road!]

So I knew it was OK for me to keep going straight through the intersection. Or so I thought!

Next minute I am slamming on my brakes as the car accelerates across the street immediately in front of me. As my scooter hits the fender I go flying across the front of the car and land on the pavement on the opposite side.

For anyone who has experienced such an event you will know what I mean when I say that it was like the whole thing happened in slow motion. Quite weird!

I can remember looking at the car as it headed for me and not believing that this was really happening.

Because I was convinced it was going to turn left. The driver had indicated that he was turning so what was he doing on my side of the road?

But there he was. I couldn't believe my eyes but eating bitumen convinced me that this was indeed reality!

Ever since, I don't trust car indicators. Instead I have learned to look at the front wheels. Because this is the true indication of which way the car is actually going to go.

And you can't rely on looking at the driver, even if you can see them. Because they often don't seem to know where they are going, either!

But the wheels don't lie!

The car can only go in the direction they are pointed.

Now what on earth has this got to do with what I was talking about before?

You remember I was telling you about the problems we were having with technical indicators? Well what finally dawned on us was that we were not taking enough notice of price action.

And so we started to study the chart before adding any indicators.

And suddenly we saw what was really happening. It was like looking at the car's wheels instead of its blinkers.

You see, technical indicators are just what they say they are - indicators. Not reality. Not price action.

But an interpretation of price. A filter.

And so you need to look at a stock's price chart on its own to get a picture of what is really going on.

This is not to say that technical indicators are not useful. But the critical thing is to only use them after you have analyzed price action. Not before.

Just remember - the wheels tell the truth!

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn't worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

David Chandler
http://www.stockmarketgenie.com

For your FREE Stock Market Trading Mini Course:

"What The Wall Street Hot Shots Won't Tell You!" go to: http://www.stockmarketgenie.com

---

Effective Advice For A New Generation of Investors

CATCHING A FALLING KNIFEOne of the most common mistakes made... Read More

What My Horse Had For Breakfast

Let's see, he had some oats, fresh alfalfa and his... Read More

Brain Snappers and Other Wall Street Nonsense

The last time you spoke with your broker did he... Read More

The Differences Betweeen the Wealthy and Everyone Else

I recently received an e-mail from a young lady who... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well... Read More

The Conflict of Interest Game

Disgruntled investors are going after Wall Street once again, this... Read More

Buying a Home - Your BIGGEST Investment

This column has often focused on intangible investments like stocks... Read More

What Is A Fair Market Value, Really? If Youre Going To Trade, Be Sure Its Worth It!

I've been involved in online trading, specifically with stock and... Read More

Powerful Options Basics Lessons Improving your trading in 180 days.

An option is a traded security that is a derivative... Read More

Invisible Mutual Fund Fees Erode Your Returns!

Many investors think that investing in mutual funds is free.... Read More

Forex market offers opportunity and information

The forex market is what is called an international exchange... Read More

Making It Second Nature

Not long ago I was laying on my son's floor... Read More

Quit and Retire Three Years Earlier!

For most people, there is a direct correlation between how... Read More

Fundamentals of Option Pricing

When one begins to consider an option, it is very... Read More

Trading Is Not Rocket Science!

Despite what some people may lead you to believe; day... Read More

Why have Investment Plans for the Stock Market

If you do not have an investment plan in the... Read More

Maniac Investment

Let's first understand what maniac means. According to Webster a... Read More

The Three Legged Stool

My paternal grandparents were born near Lake Como, Italy. My... Read More

Remembering TEOTWAWKI and Learning from It

Its only been about 5 years since we had major... Read More

How to Invest Overseas - Intelligently!

In recent months, many advisors have talked a lot about... Read More

It?s Not the Size of Your Bank Account

You might think that if you win the lottery or... Read More

Now is the Time to Invest for Your Retirement!

Yes, it's the time we've all been waiting for?tax season!... Read More

The Switzerland of Asia Shines

In many respects, Singapore is the Switzerland of Asia.Begun in... Read More

Building The Foundation For Wealth

You wouldn't build your home on anything less than a... Read More

Realistic Investing Expectations

Over the long term stocks have provided us with great... Read More

Art Investing for a Financial Future

When we think of investing we probably conjure images in... Read More

Tyranosaurus Rex

Everyone knows T Rex was the most fearsome of all... Read More

Reading Between The Lines In Annual Proxy Statements

Upper Saddle River, N.J. - May 11, 2005 - Now... Read More

Beta Factors: How They Can Be Used In The Current Situation

Ever since the turn of the century, world stock markets... Read More

Buy: Hold: Sell: Jump

I'm sitting here at my computer desk with a cup... Read More

Annuity Investment - The Whole Truth

Do you ever feel like you haven't been told the... Read More

Planning Starts with the Basics

When developing a plan for your finances, the toughest question... Read More