BarroMetrics Views: Your Trading Plan 3 – Discretionary
Once we have identified the trend of the timeframe we are trading, we need to the question:
“Continuation or change? ”
That is, is the trend likely to continue or change?e can seek to answer the question with reactionary or forecasting tools. Reactionary tools are tools that take place after the event has taken place. For example:
in a Head and Shoulders pattern, the change in trend confirmation does not happen until there has been acceptance beyond the neckline.
In the Barros Swing method, there are four lagging change in trend patterns. One of these for patterns must appear whenever there is a change in trend.
The other type of tool is the forecasting one. An example of this is the Elliott Wave. In the Barros Swing approach, there are two main forecasting tools
- Statistical inference
- The Ray Wave
Statistically, we can determine if the higher timeframe line swing is overextended. When this occurs, the traders timeframe trend is positioned to change.
The Ray Wave is a type of objective did Elliott Wave. The form and structure of an impulse wave provide substantial clues about the possible change in trend.
It’s now appropriate to consider the differences between impulse and corrective waves. In the Barros Swing approach, we have a unique way of distinguishing between the two.
Let’s consider Figure 1. The question is whether waves BD, EF, and GH are impulse waves. What do you think?
I consider waves BD and EF as corrective and wave GH as tentatively impulsive. The reason waves BD and EF are corrective is because they have re-entered the boundaries of the previous corrective wave. For me, this occurs whenever there is acceptance beyond the primary zone.
Wave EF I am treading as tentatively impulsive unless it crosses above the primary buy zone.
You will recall that the primary zones are calculated by:
- Taking the range of the boundaries of congestion dividing by eight.
- The Primary Sell Zone is is the high of the boundary of congestion and the high minus one eight; and
- The Primary Buy Zone is the low of the boundary of congestion minus one eight.
The distinction between impulse and corrective waves is important for statistical inference and the Ray Wave.
Your discretionary trading plan needs to encompass a set of change in trend tools. Without them, you’re likely to be surprised when the trend changes.
Tomorrow I shall consider the final tool in the Barros Swing method for answering the question: “continuation of change”.
FIGURE 1 60-min AUDUSD