The #1 Indicator Professionals Focus On

by Gratis Roze

http://stockcharts.com/articles/journal/2016/03/the-1-indicator-professionals-focus-on.html

A week doesn’t go by without some investor asking me “which one single indicator do you recommend above all others?” When I answer this question, the indicator I speak of is never the one they expect.  The most important indicator – the one that will determine the majority of your successes or failures – is you, the Investor Self.  As my fellow trader Ed says, “Sine qua non” (without which there is nothing).

So how do we define this indicator?  How do we learn to understand the Investor Self – to know what its strengths and weaknesses truly are?  The answer lies within the one thing that is an investor’s best friend – his or her trading journal. Profitable behavior is based on good organizational routines, flexible thinking, consistent discipline and self-control.  A trading journal is like an expensive custom racing bicycle that allows you to get there faster than the next rider.

I’d like to describe for you just how I’ve structured my own journal.  I would encourage you to customize yours to the point where it will come to feel as comfortable as an old pair of slippers.  I’ll describe my slippers, but you have to find your own.  My daily journal is divided into four sections:

  • Personal Items
  • Market Notes
  • New Ideas
  • Refinements

Before I get into the specifics about each module, let me share with you a few essential caveats about keeping a journal.

  • Write the journal for yourself.  Be brutally honest.  Assume that no one else will ever read it.
  • If it’s worth living it, write it down.  Your journal should showcase your powers of observation.
  • Discipline yourself to routinize your daily observations.  Reward yourself when you do.  Don’t make it a chore. Have fun. It’s okay to miss a day.
  • Close the door. Ignore the phone, shut down the internet and don’t answer those emails.  Don’t let interruptions bother you during your “journal time”.
  • Let the market educate you. Learn from your mistakes and those of others, but express your lessons as positive statements, not negative ones. Be precise. Clarity about the lessons learned is very important.
  • Be true to your system, not to your emotions. Don’t change your job description to fit the market.

Now back to those four modules in my own daily journal:

  1. Personal Items:  Each day, I start by writing about something non-market related that was memorable and positive for me. I try to take the pulse of my “creative tension,” to ask questions related to my energy level and confidence and to ferret out whether I’m feeling tired or fearful.  By peering into my inner self, I am then able to rate myself on a scale from one to ten. Seize the day.  Commit yourself to the fact that each moment in life is precious and experience it with a passion. With this in mind, are you getting an idea about how self-reflective and unique our respective journals might be?  That’s why we call it a personal Trader’s Journal.
  2. Market Notes:  Now that you’ve gauged your own mood, it’s appropriate to focus on the mood of the market. We all will have our own little personal checklist to help us note our observations. I like to review yesterday’s market close and this morning’s European markets as well. I devise both bullish and bearish scenarios for today’s markets and tomorrow’s, and each day I’ll comment on yesterday’s scenarios. If there is anything particularly confusing about the markets, I address these items here as best as I can. Closing out this portion, I assess what my general reaction will be to the market today from the viewpoint of either a buyer, a seller, or a stops adjuster.  And sometimes, I decide it’s best simply to be quiet and do asset allocation reviews.
  3. New Ideas:  This is the daily creative brainstorming session that challenges my observational powers and gives me permission to dream big, bold and outrageous. I’ve gone back in time and tracked some of my best ideas, and many of them started germinating right here.  Learn to accept change and seek it out.  Change creates opportunities, and the market will pay you for identifying these opportunities. This is free form fun – thinking out of the box kind of stuff!  This is where you do your “observational weight training.”  The objective is to visualize the markets with a totally fresh perspective.
  4. Refinement:  This part of the journal is for grown-ups and serious investors determined to improve their trading results. Here you study your mistakes and study your winners.  Earlier I mentioned in the caveats about being brutally honest with yourself.  Ladies and gentlemen: this is where you step up to the plate. It’s all about examining your behavior yesterday.  Did you let emotions creep into your decision-making?  Why?  Did you follow your system?  Why not?  Did you personalize a loss?  How was your execution?  Any bad behavior?  How can you improve?  Delve into understanding your personal strengths and weaknesses, and then write down what you’ve learned.  Really work at making this module your own.

Having said all this, take pride in your ability to maintain mental and physical equilibrium.  Aspire to become an objective observer and a tough-minded decision maker without an ego.  I’d also encourage you to keep a cylinder of colorful pens and highlighters on your desk to personalize and code your comments. Scratch comments in the margins and paste articles on the backside of pages.  The bottom-line: if your journal begins to look like a scrapbook, you have truly arrived!

Trade well; trade with discipline!
-Gatis Roze, MBA, CMT

Presenter of the Tensile Trading DVD, Stock Market Mastery.

Developer of the StockCharts.com Tensile Trading ChartPack.

P.S. Click HERE for information on my future appearances & seminars.

, CMT, holds an MBA from the Stanford Graduate School of Business and is the past president of the Technical Securities Analysts Association (TSAA). Since retiring from an entrepreneurial business career in Silicon Valley, Gatis has actively managed his own account full-time for over 25 years. He has taught sold-out investment courses in the Seattle area since 2000 and recently released the top-sellingTensile Trading DVD course. He is also the creator of the popular Tensile Trading ChartPack for StockCharts.com users.

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