BarroMetrices Views: Stats and Trading Plans
Stats in a trading plan are little used by traders. Part of the problem lies in the perceive difficulties in learning the subject; part lies in the processing of data.
The first problem is easily overcome: read ‘Statistics Without Tears‘ by Derek Rowntree. The book was published in 1981 and cost me US$5.00. It was one of the best buys I have ever made. For someone who was (is?) a dunce at maths, the book opened the world of statistics - the journey was effortless. The only maths involved was ‘plus, minus, divide and multiply’.
The second problem was less easily solved. Gathering the data, inserting that into a spreadsheet to obtain the results, and maintaining the data set was a cumbersome process. Too cumbersome for many traders. Now, Market Analyst has come to the rescue.
Figure 1 shows the EURAUD, 5-min chart with the stats for impulse (deep red) and corrective swings (light red). Obtaining the stats for 51 swings tool less than 10-mins. An easy and effortless process.
So, how do I use the info?
From the stats I derive the idea that, in this timeframe, a normal impulse move would be at least 30 pips. Overbought for me would be at least 53 pips. Hence if I am seeking to see an upswing, I’d like to see at least more than 30 pips (preferably nearer to 50).
Figure 2 shows an impulse move into a Primary Sell Zone. The size of the move is 24 pips. Under this circumstances, all things being equal, I would forge taking a sell signal on the basis I’d expect to see another move up. Seeking at least a normal move has saved me many a time. Have I missed moves using this approach? Sure. But, on balance, I am ahead by not taking marginal trades.
(A short note to advise that I won’t be posting on Friday)
FIGURE 1 Stats
FIGURE 2 EURAUD 5-min