Sometimes less is more and when it comes to investing it occurs more often than you would think.
If you have read any of my crypto trading posts you know I keep it simple.
- Support/Resistance and Trendlines
- Candlestick Patterns
- Multiple Time Frame Analysis
That is it - done and done.
Fibonacci levels, Elliot Wave theory, Stochastics, MACD and so on...
- I have used them all and they can be great indicators
But in the end, do more indicators actually help?
In 1973 Dr. Paul Slovic did a study consisting of eight professional horse handicappers.
These gentlemen were some of the best and made their living exclusively from betting the ponies.
The study went as such:
Slovic gave the handicappers each five pieces of information about the race (jockey's experience, etc, etc.)
He then had them pick horses for a bunch of races and also asked them what their level of confidence was that they picked the winner.
The results were:
- 19% confidence level
- 17% accuracy on their picks
Not bad at all, the level of confidence was rather in tune with the resulting accuracy of the picks.
Slovic then continued to add more and more information with each round of race picks.
10 pieces of information, then 20 pieces of information.....finally he gave the handicappers 40 pieces of information!
Basically any intel a handicapper could reasonably get their hands on was available.
What was discovered...
The confidence level of the handicappers continually climbed as they received larger sets of information, but their accuracy of picking winners did not.
In fact, when given 40 pieces of information the accuracy was 17% - same as with just five pieces of information!
But here's the thing...
The confidence level of the handicappers shot up to 31% when they had 40 pieces of information.
Conclusion
Turns out more information does not necessarily lead to better results.
Rather, additional information leads to confirmation bias.
Also, the increased confidence may lead to taking on more trades or sub-par trades because of the additional confidence.
When it comes to trading crypto or anything for that matter, don't get overwhelmed and confused with 10 indicators. Understand the action of price and volume and go from there. Nearly all indicators stem from those two things anyway.
I suppose the phrase - keep it simple stupid (kiss) become a thing for a reason!
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Best Regards,
