Its Not The Tool

There is an old adage that it is not the tool but rather the person which wields that determines ones effectiveness. Let me give you two examples one historical and extreme and the other trading related.

In 1941 and early 1942 Japanese aviators crashed their way through the Pacific – superior aviators in a superior machine shot Allied pilots out of the sky in their hundreds. Aided by extraordinary training, years of combat experience in China and flying the superlative Zero which was probably at the time the world’s best dogfighter even besting the legendary Spitfire, Allied pilots simply had no answer. Blessed with extreme range, a blistering climb rate and extraordinary manoeuvrability the Zero was superior to all Allied aircraft in the Pacific. If American, British and Commonwealth pilots were to be little more than target practice they needed to find a way to negate the advantages of the Zero.

The first breakthrough came from the mind of US Naval aviator John Thatch who sat and studied the problem looking for a way to get back into the fight. He invented a technique known as the Thatch Weave where two pilots operated in mutual support. If a US Navy fighter was attacked by a Zero its pilot simply turned hard towards his wing man. If the Japanese pilot held his course he would run straight into the guns of the supporting fighter. This technique took advantage of the Japanese reluctance to mutually support one another – they viewed aerial combat as akin to the one on one combat their samurai ancestors engaged in. Allied pilots had no so historical hang up.

The second breakthrough came when the Allies captured a Zero in the Aleutian Islands, carefully putting it back together they discovered that the Zero had a mechanical based weakness that limited its manoeuvrability in certain planes of movement. Pilots discovered that if you had a Zero on your tail the best technique was to push the nose over, firewall the throttle and then slam the aircraft as hard as they could to the right. The Zero could not follow this manoeuvre and would slide by and have to break off the encounter.

Two simple ideas rigorously applied enabled Allied pilots flying inferior machines to take on the best weapons system of its time and they were able to hold the line until the extraordinary American war machine built up steam.

The second example is a practical one from the field of trading. Consider the three charts below  of CSL. On these charts I have plotted a continuously plotted ATR trailing stop, a series of 52 weeks highs and 26 week lows and a 90 period moving average.

If you look at all three charts they generate buy and sell signals at roughly the same time – there are some slight differences but over time these wash out. The three approaches have to generate the same signals because they are based upon the same data and are standard trend following measures.  You could use any of these techniques in any market that trends and be profitable – you could if it suited your psychology use them in combination. I am not presenting anything new or ground breaking – I dont claim to have invented anything that is revolutionary and I do accept that it is a sample of one. To me that is an irrelevancy because of a simple understanding as to how the trading world works.  Markets offer you all the information you need and they are very generous in that respect. There will be countless traders who saw the above signals using whatever method they use but did not take them. This is down to the trader not the tool as you can clearly see the tool has told you what to do. Whether you do anything is up to you. I have lost count of the traders I have run into at functions who will blab utterances such as I saw A2 Milk breaking out at $6.00 and when asked whether they bought any the answer is almost always no.They offer some sort of nonsense such as when they changed their RSI from 12 days to 9 days it just didn’t look right……as if that matters.

Trading is a wonderful profession – your success always belong to you as do your failures which is why it is almost impossible for some to trade. It is much easier to blame your tools than to blame yourself.