Normandy

Do you know how the Allied forces won the World War II?

Eisenhower had 156,000 men for eight possible invasion points. Which means 19,500 men per point. Otherwise known as nothing. He had to put everything that he had into one attack.

Normandy.

So the question is. Where the hell is our Normandy?
 
- Suits


Most new traders have a tendency to chase several different plays at the same time. We ride every active stocks. We want to catch the movers. We have this urge to learn as much as we can in the shortest amount of time. We buy books. We watch video tutorials. We read blogs. We follow famous traders. We copy their styles. But most of the time, this results into dividing the our focus on to each of the plays, without accomplishing very much on any of them.

That was me a few months ago. I would wake up at 5AM in the morning everyday and watch the market just to catch movers. The results? More losing trade than wining ones. When I enter the world of trading, there's so much information that I thought that I need to know. I googled most of the indicators. I watched videos that explained how to use them. MACD, RSI, Stochastic, Bollinger Bands... you name it. I watched. I read. But I never really learned. I jumped from using one indicator to another. I even mixed them up and use them in combinations. The results? Information overload. And now I learned that it only takes one or two tools to build a system, so why learn lots of indicators that you won't even use.

Now why focus on one system only.

Let me rephrase my point.

Yes. I only need to focus on one system... at a time.

Since the stock market ranges - trending or sideways - I only need either one system that can work on both or one system for each type of season. Put all my efforts in getting good at one and it will serve me better rather than dividing my focus on bunch of systems that I don't even understand which gives me poor results. The only way to get good at something is to do it again and again.

If you suck at free throws, practice at free throws. Don't practice three-pointers. Don't practice layups. Do free-throws. Again and again. Don't stop when you get it right. Stop until you can't get it wrong. OK, that last line was exaggerating. But, yeah, technically, until you get it nearly perfect.

Now, back to 'Normandy', a 19,500-strong at eight different places is a recipe for defeat. However, 156,000 men at one point, has a higher chance of victory. Makes sense.

But where is my Normandy?

Eisenhower tactically chose Normandy for the point of invasion. The Allied forces chose five beaches for their initial landing codenamed Utah, Omaha, Gold, Juno and Sword. For it was the place with least German forces. Posing lesser risk for the operation and a higher probability of winning. They waited for the right phase of the moon as Aviators wanted to wait for a full moon so that they'll have enough moon light to be able to see where to drop 13,000 paratroopers. The Navy wanted to wait for a low tide so that obstacles laid by the Nazis on the beach could be seen and they can pass safely. Mirroring that tactic in trading. It is just right for newbie trader to focus his efforts in 'attacking' the setup with the lesser risk and focus his efforts on that one setup. As a newbie's goal should be capital preservation and mastery first before capital growth. And what setup in trading gives a lesser risk for a trader?

Trend following (Codename: Utah)

Utah will be my first 'beach landing'. A trend follower's (or any other setups) biggest risk happens when the trader doesn't stick to his system. From the results of my back testing, a trend following system is bound to give me small losses but BIG winners. That is if and only if I stick to my system - to my rules. My system should tell me not to stay long in losing positions. Which poses a big risk to my capital.

By practicing trend following, I am basically bound to enter a trade where the stock is already in an established uptrend. While not picking the bottom is not fun, entering at a confirmed uptrend outweighs the risk of buying a stock in a downtrend or bottom-picking. Think of it like watching a concert or gig. It's more often fun to arrive when the main act is just about to start their performance and the energy of the crowd is already in full swing than showing up early and standing like zombies in front of lesser popular front act band.

The good thing about trend following is that it increases my chance of high probability setup because I'm already riding the trend. This means that there's less chance that the trend will snap and reverse on me (depending on the season). It's not perfect but it works

I'm not saying that all traders start with trend following, too. But from what I've experienced from the beginning for my journey. You don't need to learn all the stuff at once. Start with the basics. Then slowly make your way into finding that one system that would fit your own lifestyle. Then start practicing that system. Stick with it and block out all the noise. But remember that no matter what system you pick, you will lose money at first. But that's how you learn. By experiencing the loss. By taking risks.

By having a little of skin in the game.