See the Obvious, do the Obvious

Trading is a very difficult job, not only because of the technical requirements but also because of the mental toughness and discipline it requires. In this article we will explore the obviousness of the obvious...and why we really tend to overcomplicate things!

1. So obvious, it's invisible

It is most difficult to see things that are not there but the obvious is even harder to observe. Do fish notice water? No, but it is all around them. Is water important for fish? Certainly, it is. This is why detecting the obvious is a vital art of masters: ask yourself why some long held belief is so certain and challenge yourself to look at it otherwise. Such trifles can change the world. Let us start withf a story from Nasreddin Hodja, the wise fool of the east:

“Season after season, day in day out and even three or four times a day, he would ride his donkey through the toll gate up the valley. Time after time the customs officers would check his load, saddlebags and even his turban.

They never found more than loads of hay. They knew there had to be something but just couldn't find what.

This ploy continued under the nose of the border guards, for several years, to the despair of the captain.

Forty years later, the retired captain leaned over the table at the tea house in Aksehir, closer to the Mullah's now respectable white beard and asked,

"Just tell me Hoça, before we die in our old age and your skilled trick gets lost. What were you hiding? I checked you so many times, with my own hand, and your donkeys never carried anything other than hay. What was it that you smuggled?"

The Mullah stared at him with his round innocent eyes.

"Donkeys, what else my good man?"

The story allows us to understand how some of the biggest things around us dissolve into the background...quiet things fade from attention. And this is true in trading as it is in real life.

2. The 10 second drill

So let's get down to the nitty-gritty stuff and start seeing how we can see and do the obvious in trading. The drill I suggest is quite simple and yet very effective. Pull up a chart on the large hourlies and look at it for 10 seconds. Is it doing something evident? Good. Play in line with that. Do you have to stare at it for much longer...do you have to “look for something” ? Simply, there's nothing evident to be seen and where money is involved, simple and obvious things always trump complex analysis or overthinking. Let's go for an example.
First, let's do the 10 second sentiment drill. What is the market focused on?


It's hard to ignore the weak-USD story. Source: Reuters.com
So we should be looking to play short-USD positions today, if something evident stands out. So let's go look through the FX majors to see if anything evident stands out.

GbpUsd 4H chart. An evident trend is in place challenging 1.70 and we have sentiment behind the move.
Source: tradingview.com

A tactical view of what could have been played today on GbpUsd in line with our 10 second drills.Source: tradingview.com
And now compare this view of Cable with UsdJpy. Ask youself: which chart looked more obvious? Which might have a higher probability of giving me a good reward for my risk? We're still looking for the weak-USD theme, but by playing the obvious instead of the less-obvious, the probabilities can be stacked a little more firmly in our corner.

UsdJpy 4H chart: a nowhere near as obvious as Cable...so there's going to be more 2-way action and the probability of having a sustained move in one direction is lower.
Source: tradingview.com

To sum up: trading can be as easy or as difficult as we make it. By paying attention to the obvious things, and not overthinking it, we can stay on the right side of flows more often than not. Sure, it might require us to sit on our hands more than other traders. But if we can reduce the amount of errors and stop outs in this way, then we're automatically saving money and gaining an advantage compared to traders that are chasing every move, in every direction, every day. Keep it simple, and obvious, to say profitable.

Good Luck!

References:
1. http://wisdom.tenner.org/secret-life-of-the-obvious.html
2. Orderflowtrading for fun and profit - D. Goldsmith