DISCOVERS TECHNICAL INDICATORS
Once the discretionary trader discovers technical indicators, he or she
incorporates some rudimentary ones into trading, usually as additional
justification for making the trade. “Not only did Ralph (my broker) tell me to buy
Gizmo Corp. but Gizmo has great relative strength. Gizmo’s moving averages are
bullish, and the Stochastics are oversold and giving a buy signal as well.”
These newfound technical indicators give the discretionary trader a new lease on
trading. Now our trader has a whole new world in front of him—the world of
technical trading. For a while, this newfound world combines with intuition and
the discretionary trader views himself as a strategy trader. He says, “I trade a
strategy using moving averages and Stochastics with a dash of daily news and tips
from my broker. I am now a real objective strategy trader.” While the trader may
view himself as a strategy trader, this could not be farther from the truth. The
discretionary trader’s style is still undisciplined, based on newly educated guesses,
and he is probably still losing money.
For a moment, these technical tools were thought to be the answer, and while
they add a little more rationale to his trades, the losses continue to pile up.
Despite his continuing angst, our discretionary trader is now on the way to
becoming a technical trader.