The Value of Simplicity in Trading and Investing: Navigating Complexity with Clarity By, Jeff Boccaccio and Bill Scheidt

Bill Jeff Side by Side Headshot

Here’s an old adage that you may have heard before, “Trading is simple, but it’s not easy.”

That’s a belief.

Another belief is, “Trading is complex and complicated.”

If you were to take on each of those beliefs individually and think through some resulting strategies, they would likely lead you in two different directions for trading, and probably to two different sets of trading results.

Van Tharp said that we don’t trade the markets, we trade our beliefs about the markets. Your trading performance is based on your actions which are ultimately based on your beliefs. So? So, knowing what you believe is really important. If you believe that (no pun intended), then we could improve our trading performance by choosing to believe a more useful belief—“Simplicity is an edge.”

How could simplicity be an edge? The value of simplicity lies in its ability to provide clarity, reduce mistakes, and increase emotional discipline. Simplicity can manifest in a number of ways, including rule sets, indicators, chart patterns, and order entry tactics. By embracing simplicity, traders can navigate complexity with greater ease, enhance performance, and achieve long-term success.

In this article, we explore the significance of simplicity in trading and share four ways it can lead to better outcomes.

1. Clarity of Focus

Complex trading systems and investment approaches can often cloud decision-making, leading to confusion and poor outcomes. In contrast, simplicity promotes clear thinking and a focused approach to decision-making. Focus begins with having clear objectives for our trading and reminding ourselves that we meet those objectives through position sizing.

A simple trading system is easier to execute and can keep us focused on the actual objective. This helps us avoid getting sucked down the rabbit hole of endlessly tweaking system rules in a search for better performance. In this way, simplicity helps us avoid overoptimization and lets us prioritize the elements of trading which actually lead to success.

2. Emotional Discipline and Mistake Reduction

Complex systems can be difficult to execute when volatility and emotions are running high. In such fight-or-flight moments, brain activity switches from the pre-frontal cortex to the amygdala, making clear cognition difficult and increasing the chances that we’ll make a mistake navigating complex rule sets. By keeping things simple we are less likely to react emotionally or make mistakes, where a mistake is defined as not following our rules.

In our own trading, the power of simplicity has enabled us to successfully trade one of the most volatile markets in the world: cryptocurrency. We design systems with a clear and concise rule set knowing that simplicity would give us a critical edge when volatility runs wild. We have been able to capture profits with very high levels of efficiency in a calm and disciplined manner.

3. Time Efficiency and Reduced Cognitive Load

Complex trading systems can demand significant time and effort to understand and implement. By adopting simple systems, traders can get up and running quickly and spend less time on trade execution or analyzing complex indicators.

For instance, you can design trading systems with a clear and objective ruleset that does not involve analyzing intricate chart patterns or complex indicators. This approach allows traders to quickly learn the system, focus on high-quality trades, and make more effective use of their time.

4. Long-Term Consistency and Meeting Objectives

Simplicity promotes consistency, which keeps us on the path toward our long-term goals and makes it easier to reach our objectives through position sizing. Complex and over-optimized strategies often struggle to adapt to changing market conditions. This can lead to erratic performance when the market type changes.

We have found that robustness can arise from simple trading systems which often means such systems can be traded in a variety of markets, on a variety of timeframes, and in potentially more than one market type. This type of diversification can further help with long-term consistency.

Simple systems can be quite profitable. This chart depicts a swing trade from our PRX System.

1163 JB Chart1

Van was a big proponent of making trading as simple as practical. He would advise traders to avoid the complexity trap wherever possible and build that simplicity muscle. By embracing simplicity, traders and investors can enhance clarity, improve decision-making, and maintain emotional discipline. Simpler systems help reduce costs, save time, and promote consistency in performance, ultimately helping us meet our objectives.

As another old adage goes, “Simplicity is the ultimate sophistication.”

Editor’s Note: Do you crave a simple system to trade? PRX traders benefit from all four advantages mentioned above for simplicity in trading. The simplicity of the PRX Crypto System provides a big edge and reduces mistakes both for experienced and newer traders. Because traders can apply the PRX rules across timeframes and in more than one market type, it diversifies positions and helps you generate more consistent returns over time.

Learn the PRX Crypto System on Saturday, August 19th. Click here to find out more about the system and register.

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