The Traders Journal

Evidence-Based Trading for Dummies

Robin Griffiths, the renowned technical strategist, once opined that “Trading is a traffic light system.  At a traffic light, you wait for it to turn green and then you go.  You don’t try to predict when it’ll go green.

Unfortunately, far too many investors believe that to achieve success in the stock market one must become supreme master of the crystal ball by creating a complex methodology that will predict where the market is headed.  In reality, this is the absolute antithesis of what market wizards will tell you.  For that reason, I think Robin’s metaphor is spot on.

At a traffic light, you sit patiently with your foot on the brake; when the light turns green, you hit the gas and off you go.  It’s straightforward, and the average Joe who drives generally follows this program.  You don’t try to predict when the light will change; you simply respond appropriately when it does.   

There you have it – my trading methodology in a nutshell.  Occasionally, I do remind myself that I’m not in the business of trying to divine the market’s direction.  I’m in the business of reacting to it.


I maintain that Wall Street is the world’s most sophisticated disinformation machine ever devised.  Ask yourself how often you’ve witnessed the marketing and hype influencing the market so much more than the actual facts and data.  

It is exactly for this reason that I trust my charts, believing that their price and volume tell me everything I need to know to separate market noise from profitable trading signals.   I watch and I wait for their signals to turn ‘green’, then I take my foot off the brake, step on the gas and just click the ‘buy’ button.  

What this amounts to is ‘evidence-based trading for dummies.’  That’s not to suggest there’s no skill involved.  Stepping on the gas and clicking the ‘buy’ button still requires a trader to channel his or her unemotional android side.  Plus there is all the resourceful stalking, position sizing and stop-setting that should go on before you trade.  But my point is this:  don’t allow yourself to become confounded and bewildered, thereby freezing at the intersection .  Instead, when the light turns green, take your foot off the brake and step on the gas.

Trade well; trade with discipline!
-- Gatis Roze

P.S. Thank you to my trading buddy Charlie K. for providing the catalyst for this blog.

 

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That some of the simplest and best metaphors for successful trading that I have ever found. Kudos!
Love this blog. So basic, yet so clear and concise. Love the traffic light analogy. I think I will print this out as a reminder.
Great advice - as a novice trader this is very solid and simple information to digest and trade with. Reassuring Thankyou
Yes and add to it the discipline to resist all other influence.Not easy to do.
That was just as simple as it gets great metaphor.
I enjoyed meeting you at ChartCon and look forward to working my way through your DVD!
But what about the green light turning red as you pass under it ? I do however agree that Wall Street is the great disinformation machine.
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