In trading, we often hear a phrase called "the great way is simple." It is also commonly said that trading should return to its essence and implement simple trading strategies in order to ultimately achieve profitability. But is this really the case? Can simple trading strategies really lead to profits?

I myself have experienced ups and downs in trading, having suffered losses to the bottom and also having climbed back up. I have formulated extremely complex trading systems, for the sake of showing off and flaunting, and I have also used extremely simple trading systems, suffering heavy losses as well.

What is truly right, and what kind of trading system can truly achieve profitability? Today, let's discuss this topic.

1. Can simpler technical indicators and simpler trading systems lead to profitability?

Most of us who engage in technical analysis have had similar experiences. At first, we learn a lot of trading knowledge, various technical indicators, and academic theories, filling our minds with strategies and techniques. The trading systems we build become increasingly complex, and in the end, we lose our direction, not knowing what is right or wrong.

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Later, we hear the market's mantra of "the great way is simple," and we think that many so-called teachers can achieve profits with a bare K-line, which we find incredibly impressive, like the ultimate idol! So we start to go to the other extreme, simplifying our trading strategies to the utmost, thinking that if we can achieve profitability with such a simple strategy, we could be deified in the trading world.

But whether in trading or in life, the most taboo is "excessive self-awareness." We are all ordinary people; we cannot become gods. Even if we achieve profitability with the most common and simple methods, as long as the result is profitable, our goal is achieved.

Therefore, what the market says is not important and is irrelevant to us. Always remember that our only purpose is not about face-saving projects, but about achieving substantial profits.So, what kind of trading system can achieve profitability?

Simple, but not too simple, otherwise it is not conducive to execution.

I've seen a question online: Can a trading system that uses a single moving average to dominate the market, going long when the price is above and short when it's below, be profitable?

Let's not discuss whether this method can be called a trading system or whether it can be profitable. First, let's talk about a key point that most people tend to overlook: A trading strategy is a method to achieve profitability, but the ultimate profit depends on the execution.

Therefore, when we formulate a trading strategy, we must consider the executability of the strategy, rather than just considering its simplicity or complexity, and whether it has the ability to make a profit, etc.

Back to the original question, can a single moving average work for going long above and short below? The answer is: From an execution standpoint, no.

Using a single moving average as the basic trading rule, we can formulate a simple trading system to illustrate with an example.

When the price line crosses above the moving average, we go long, hold the long position, and when the price line reverses and crosses below the moving average, we close the long position and enter a short position, holding the short position, alternating continuously in the market.

This trading system is very simple and at the same time very crude. In theory, it can be profitable, but it will have phases where it performs poorly in trading.

We traders are human beings, and such frequent stop losses at this level will be like a hammer continuously striking our hearts. Just this simple trend has hammered us more than 20 times; who can bear that?If we lose our execution power here, I will also show you the subsequent trend for everyone to see.

It seems that after a storm's cleansing, we have been waiting for clear skies. As hindsight is 20/20, we all feel that we can hold on until that day. But if you are in the current market, having been stopped out more than 20 times in a row, and you do not know the future trend, not many people can withstand such continuous stop losses.

Never, ever overestimate your own tolerance.

Therefore, our trading strategy cannot be too simple; if it is too simple, we will encounter many execution issues.

So, what should we do? Based on this trading strategy, we can do some trading signal screening to reduce the number of stop losses and the amount of losses in the volatile market.

Filter trading signals with the trend of the daily line. In a bearish trend at the daily level, only choose to go short on the hourly chart, and give up the long positions that break through the K-line. In this way, the number of stop-loss orders can be reduced by half, and the amount of stop losses will also be significantly reduced. Our hearts will not be pounded too many times, at least preserving our execution power and not missing the big one-sided bear market that follows.

In fact, there are many ways to filter, such as using multiple indicators, multiple patterns, and multiple time frames for filtering. After filtering, the originally extremely simple and crude trading system becomes more complex. Although the strategy is more complex, it is more conducive to execution, which is a good optimization.

So, our trading strategy is not the simpler the better. This assessment criterion is wrong. We should, on the basis of considering executability, strive to achieve simple and clear trading standards as much as possible. This is conducive to our identification of the market and more ensures our execution power.

2. Your trading system can be simple, but the construction process must be complex.

Many people will be confused when they see this title again, didn't we agree that the trading strategy should be simple and clear? How come it still has to go through a complex process?In fact, the simpler and more essential something is, the more complex processes it has gone through to be refined. What appears to be simple is actually quite difficult, and that is what holds value. It is a process you must go through, which I refer to as the ability to simplify the complex.

Let me share my experience of doing business in Africa.

Actually, engaging in foreign trade is a very intricate affair. You have to negotiate contracts with foreign clients, confirming product specifications, packaging, pricing, delivery dates, payment methods, and other details, and then relay the product details back to the domestic side.

Procuring domestically also requires meticulous attention, comparing quotes from different suppliers, packaging specifications, delivery dates, payment methods, and also controlling product quality.

Not only that, but you also need to understand shipping. You have to calculate the product specifications, how to arrange and combine them to maximize the use of a container, how to optimize product dimensions, and so on.

There are so many details to consider when trying to establish a business. It took me a year and a half to slowly master all the processes, during which I encountered many pitfalls and suffered financial losses.

But what happened later? Once all the processes were perfected and all the details were in my mind, everything became very simple for me. I just needed to execute as needed.

In the end, my state became one of leisure, with nothing much to do, just following the process to make money, which is similar to the state after I had set up and executed a trading system for a couple of years.

No matter what we do, reaching success is never easy. There may be shortcuts to help you move faster, but you still need to go through the experiences you're meant to have.

Just like some students learning my trading system, even though it is already a well-established system, I still insist that they diligently review past trades and practice with simulated accounts. They must feel the process of building and executing, experience the pitfalls they are meant to encounter, in order to temper their mindset and achieve true profitability.For instance, there are some simple principles you need to consider: which specific types of assets do you want to trade? What kind of market trends are you going to engage with? How long should your holding period be for the best fit? What frequency of consecutive losses is most suitable in your trading outcomes? What position size ratio is the most stable? And so on.

You must personally experience and adjust to find the most suitable solutions for yourself, and also eliminate countless unwillingness during this process. Once you have answers to all these questions, all that remains is execution. Just as after a year and a half of adjusting with customers in Africa, all the details were ironed out, and the business was left with just signing contracts and receiving payments.

Therefore, without going through a complex process, it is difficult to enter a simple state. How should we navigate this complex process?

Step one: Determine a trading method and start backtesting.

Backtesting is a tool that has numerous benefits and no drawbacks. You can input your trading strategy into a backtesting software to see which asset performs better, how many assets are most suitable to trade, what trading cycle to use, what trading frequency matches your daily routine and personality, and what position size keeps the risk controllable and the profits reasonable. This will help you test and develop a balanced, stable, personalized, and highly executable trading system.

Step two: Conduct simulated trading.

A simulated account is the tool that most closely resembles real trading, and it deals with future market conditions. You can test your trading system with your regular capital amount in a simulated account to see if it also has the ability to make profits in future market conditions, which can strengthen your confidence in your trading strategy.

Step three: Start with a small capital in live trading.

After completing the above series of tests, you can start with a small capital in live trading. At the beginning, everyone can start with a small capital, but it is easy to get carried away once you become stable. Here's a psychological technique I use myself.

If you have been consistently profitable for a while and want to increase your position size, always adopt the "three steps forward, two steps back" principle.For instance, if you believe you can accept a position increase of +3000, then you should only add +1000, because people often overestimate their tolerance for risk, with the actual capacity being only about 30% of what they estimate.

Secondly, avoid frequent position increases. It should only be considered after a stable period following a position increase, when you can psychologically fully bear the drawdowns and profits brought by the increase, that you can think about the next position increase.

This is similar to doing business, starting with small investments and small returns, and only after establishing a sufficient sense of trust and security do we gradually expand the business.

Moreover, after you have straightened out all these processes, you can also apply them to different markets. For example, I have previously discussed contracts for motorcycle parts, solid beverages, chemical products, and fuel dispensers. Although the products are different, the processes are basically the same. As long as you make some modifications to the details and find the supply according to the demand, you can basically avoid pitfalls.

Trading is the same. When you have mastered the entire trading process, switching to a different market, such as from the stock market to futures, or from futures to foreign exchange, the essence of the market is interconnected. You will quickly find a way to make profits and accurately avoid some pitfalls.

3. Let's talk more about cognition in trading.

In fact, not only does trading technology need to go through a process of simplification, but so does trading cognition.

Everyone has their own understanding of trading, and it is difficult for people to earn money beyond their cognition.

For example, some traders believe that trading is about high profits, doubling the position, and high risk for high returns, so they will definitely choose aggressive heavy position trading.

Some traders believe that trading should be a steady stream, pursuing long-term stable profits, so their trading strategy will definitely be conservative and they will trade with a light position.Some people believe that there is a Holy Grail in trading, so they will always be in search of methods to predict future market trends.

Others believe that human nature is powerful and uncontrollable, and that once one takes a heavy position, it will be very difficult to exercise self-control, and thus they will strictly control their positions.

So when your cognition is in place, you don't need external forces to constrain and control; your thoughts will naturally guide your actions towards the right path.

So, how can we establish the correct cognition?

Theoretical learning. There are many books that explain the process of human cognitive transformation and the methods of transformation, such as "On Practice" in the Selected Works of Mao Zedong.

The text discusses the relationship between perceptual and rational knowledge, how rational knowledge can be transformed into perceptual knowledge, and the potential problems encountered during the transformation process. You can also look for other books related to trading psychology, which will help us establish the correct trading cognition.

Practical operation. In our practical operations, we will encounter many failures and situations of loss, which is also the process of stepping into pits and establishing cognition.

What we need is just to record a little more, think a little more, summarize a little more, and review a little more than others, and we can easily discover our common mistakes, thus establishing a correct cognition of trading.

I believe that simplifying complexity is a very important ability, which applies to any industry. The so-called simplicity you see is not the real simplicity, but the precious experience summarized by most people after going through stormy waves. Therefore, trading strategies must be suitable for oneself, rather than simply pursuing the so-called "simplicity".