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Less is More

Clutter is confusing. We sometimes come across charts with so many lines, curves, squiggles and drawings that they appear to have been prepared by someone in the grip of a spirographic frenzy. Apart from traders who are long on pharmaceutical stocks and looking for ways to increase the sales of migraine medication, there are very few logical reasons for this approach. Let’s look at why it is usually best to de-clutter your charts and to keep them clean and readable.

First and foremost, keep in mind that price action is the purest and primary form of technical analysis data. And in order to draw conclusions that result in effective trading decisions, traders need to be able to clearly see and visualize the price action.

Personally, when analysing a price chart, I aim to get a firm understanding of two core aspects of price. The first is to establish the presence or absence of a trend; the second is to ascertain whether or not this trend has an optimal structure. In order to answer both these questions correctly, quickly and efficiently, you need a clear and un-obscured view of the price action.

According to my trading regime, optimal chart structure can be described as a chart where the price action is even, deliberate and smooth flowing, with no gaps, spiky candles or erratic price behavior.  These are charts where there is a steady and sustained buying or selling momentum in one clear direction. Therefore a chart with an optimal structure is also one that displays clear and discernible evidence of a trend.  A series of higher highs and higher lows characterizes an uptrend, and conversely a series of lower lows and lower highs defines a downtrend.

The analysis described in the previous paragraph requires a trader to make a visual assessment and come to a conclusion. And if you are scanning multiple charts for market opportunities, this process needs to be carried out quickly and efficiently, keeping your time constraints, in mind. That means you need a clear view of the price action. And that is easiest to see in a chart that is neat and de-cluttered.

Another factor to remember before overloading your charts with too many technical tools and indicators, is that there is no correlation between the complexity of analysis and its efficacy. For traders to optimally utilize their charts, they need to use an effective and robust strategy in which the constituent factors of technical analysis are chosen so that they work well in conjunction. In addition, the technical factors’ probabilities of contributing to success should be additive when combined, irrespective of their individual complexities.

Our experience is that overloading your charts with too many indicators and tools of technical analysis does not necessarily add value to your trading. Indeed, as we have seen, cluttering up your charts has several disadvantages and is therefore best avoided. It’s often a good idea for traders to carefully choose the tools of technical analysis they employ, and to limit the amount of non-price and indirect information on their charts. Less clutter is likely to bring more clarity.

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