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A reader, Mira, asks an interesting question:

I’ve been going through your blog and podcast and have been surprised at some of the trading tools you don’t use that everyone else seems to use. I thought it might be interesting if you could just do an off the cuff post and list things that you have found useful and not useful. I hope that doesn’t sound too much like I’m creating a “task” for you but I’m asking because I personally did this (not for trading) and it turned out to be a different way to look at my work flow process. Might be fun? Anyway, thank you for your work and writing.

Ok, I’ll bite, but let me bend the rules a bit and make three lists. Not sure how useful this will be to people, but it’s an interesting exercise. Here are my three lists, and I probably should have had a fourth list for “I really have no idea…”:

Useful

  • Understanding what changes and what does not change
  • Market structure
  • Market character (especially changes in market character)
  • Understanding how volatility evolves
  • Understanding the difference between different asset classes, timeframes, and trading styles
  • Understanding limitations (of yourself, of predictability, of luck, etc.)
  • Proper backtesting/analysis (machine learning can fall in this category too)
  • Mathematical literacy (sorely lacking in much of traditional thinking about TA)
  • Human discretion
  • Discipline

Maybe useful

  • Some chart patterns
  • Some indicators
  • Behavioral finance
  • Cyclical analysis
  • Seasonal analysis, in some limited contexts
  • Academic research (it’s a good departure point for your own work)
  • Assumptions (gotta have them, but they can kill you)

Not useful (i.e., they are lying to you)

  • Fibonacci ratios
  • Moving averages (in most applications. In fairness, there is some utility)
  • Overly simplified approaches to trading
  • Predicting market direction based on news or simplified analysis
  • Data mining (more bad than good)