Advice for the Newbie Trader: Cut out the Bullshit

The trading world is full of traps for the beginner trader. People are always trying to sell you something. It could be flashy programs with lots of colourful flashing lights and charts. It can be strategies with a 99% win rate, trading courses, trading seminars, and of course, indicators.

Sometimes when an indicator is described, it is described as a “lagging” indicator or a “backward looking” indicator, since it uses past data. I hear this from both finance influencers who only care about clicks and views and have no clue what they are talking about, but also from people who ought to know better. It suggests that there are indicators that are forward looking or “leading indicators”.

All indicators are lagging and backward looking. All indicators use past data in their calculations. Indicators are calculated using the price and sometimes volume. We do not have price and volume data from the future. Show me one indicator that is using data from the future! That would be some indicator!

In the case of the influencers, it’s a matter of not knowing any better and not caring. For those who should know better, I think it is a matter of not thinking things through. They are just using a standard expression and throwing it around. It has been used for so long that it is taken for granted and nobody actually realises what they are saying.

But there are brokerage firms out there who are also trying to sell the concept of leading indicators. Here is a quote from the website of one of them:

“Leading indicators predict the future price movement of currency pairs by using the current price data. It provides traders with ideal exit and entry price levels before a strong trend in the market begins.”

Here is another one from a well-known financial website (otherwise a very good one actually):

Is MACD a Leading Indicator or a Lagging Indicator?

MACD is a lagging indicator. After all, all the data used in MACD is based on the historical price action of the stock. Because it is based on historical data, it lags the price. However, some traders use MACD histograms to predict when a change in trend will occur. For these traders, this aspect of MACD might be viewed as a leading indicator of future trend changes.

They make it sound like they can predict the future. Please don’t fall for this. There are no “leading indicators”. They cannot predict the future; no one can! Also, if they had managed to create an indicator that could predict the future; do you think they would sell it? If I had found such an indicator, I would trade it and keep it a secret, not sell it to the people I compete with.

This illustrates that you should never, ever, take anything for granted. It doesn’t matter what the source is; always listen with a critical mind. The person may not deliberately try to deceive you, but they may not be right either, or what they say works for them, but that doesn’t mean it will necessarily work for you.

That includes me. I guarantee that I will not deliberately mislead you or tell you outright lies. However, I could make mistakes. I am dyslectic so things do not always come out “on paper” as they appear in my head. What I say may work fine for me but, perhaps not at all for you. I write my articles from my own point of view and my own experiences, and they are not the same as anybody else’s.

That is why I always try to include links in my articles on my blog and on Medium, so that the reader should go and get a “second opinion”. I say try to, because I cannot always find any other good sources that adds value to what I write. But that doesn't mean you shouldn’t look for yourself.

If you are interested in a subject that I write about then you should go out and read other sources. As many as you can. What you will find is that there are often opposite opinions out there. I am certain that you will find someone who has the exact opposite view than me. In the end it is up to you to decide what you think.

This is especially true in trading since it is your own hard earned money that is on the line. You are the one who is responsible for the result of your own trading. If you take a strategy from Mr Finance Guru Man on YouTube and apply it with your own money, then you are responsible for the outcome. Not Mr Finance Guru Man, no matter how bad the strategy was.

It is easy for a newbie to get sucked into the flashy, romantic stereotype of trading after having watched shows like Billions and movies like Wall Street. Great as they are, they have nothing to do with the reality of retail trader.

Learn to screen and block out all the BS out there. In the beginning it may not be obvious what is BS and what isn’t and that is perfectly natural. When you are new at something you don’t know these things, it is something you have to learn. As you progress, you will learn, and you will be able to separate the BS from the good stuff.

Just be very sceptical to things you read. Have an open mind without being naïve. Educate yourself with material from many different sources.