BarroMetrics Views: Comparing Analysis Approaches
The current GBPUSD provides a clear illustration of the difference between traditional technical analysis and my approach.
Traditional technical analysis tends to be a closed system. For example: if we see a H&S topping pattern with a breach of the neckline, we assume a change in trend from up to down. My understanding from the books I have read is that once the pattern appears, I lock in on the one scenario unless the stop is elected. This is the Richard Schabacker approach that was adopted by Edwards and Mcgee.
The approach I take is modeled on that of Richard Wyckoff and Peter J Steidlmayer (originator of Market Profile): rather than focusing only the patterns, they seek to understand the principles behind them and seek to keep an open mind on the alternative scenarios.
In the trad approach, the GBPUSD has signaled a clear change in trend in the 18-d swing (monthly trend). Figure 1 shows the H&S topping pattern with the breach of the neckline. The projected target is 1.5140
On the other hand, if you are using the material in Nature of Trends, the change in trend at this stage still needs to be proven.
Figure 2 shows the Barros Swing approach:
- There was an Upthrust Change in Trend Pattern with the possibility of adding to your shorts (assuming the core profit contract was taken at the Primary Sell Zone using the Rule of 3 – Nature of Trends).
- I discard the ‘neckline’, focusing instead on the price at low 1.5980 marked ‘B’. For me, at this stage, the change in trend is still in flux. There are two possibilities:
- A Whole Point Count will form under 1.59809 confirming the change from up to down in the 18-day. Or
- We will see acceptance above 1.61184 in the form of a bullish conviction bar (open no lower than bottom third of range, close no lower than top third of range and at least 50% of body above 1.61184). This would suggest a move to at least the Primary Sell Zone and probably the resumption of the 18-day uptrend: note that although the 13-week does not have an uptrend structure (higher swing highs and higher swing lows), the 12-month (yearly trend) has triggered a buy signal to the Primary Sell Zone 2.1160 to 2.0220. A 12-month move to 2.1160 must mean the 13-week is in an uptrend. (See Figure 3)
The filters I use are not only price filters (Maximum Extension); I use a momentum filter (Line Change Count – see Nature of Trends) and the Whole Point Count (WPC, a time filter). The WPC for the 18-day is 9 consecutive days where the high is at or below 1.5980. Of the three, the WPC, the time filter, I rate as the most reliable and most important.
Overall I have found that by using confirming filters and keeping my mind to alternative scenarios provides me a more profitable bottom line.
FIGURE 1 H&S
FIGURE 2 18-day Barros Swing
FIGURE 3 12-month Barros Swing