BarroMetrics Views: Entry Zones
This week I’ll reply to the questions I have received – either to my email or comments here.
ZH raised the questions in the attached doc file. For those who have not read Nature of Trends, I use statistical price and time info as the first filter to position sizing.
You have misunderstood what I said in NOT – easy to do, I admit.
Let’s turn the chart you sent me. I have added the black line, labelled 0-1.
The stats I refer to in NOT I use as a first filter to determine position size. The stats you refer to are based on the magnitude of the swing line of the first higher timeframe. If we assume that 60-minutes is your trader’s timeframe, then the black line will represent the 290-minute (EURUSD trading hours/5). If your charting software does not chart 290-minutes, then use the 240-minute.
- you assess that the trend is down, and
- you assess the trend is likely to continue, and
- you see sell signal at a zone when
- the black line has gone mean -1 one stdev,
then you look add a normal size position.
Where you have misunderstood my comments in NOT is the timeframe to which the passage refers.
If you are applying the time and price windows to the corrective moves in the trader’s timeframe, then normally I’d be looking to trade a normal position size at “mean +1 to mean -0.5” (i.e. normal correction) of the corrective mode. This comment assumes we are seeing, on the first higher timeframe, a swing magnitude that is normal, or in some cases, less than normal.
It is very important to appreciate that I do not use the swing magnitude of the first higher timeframe to determine if I should take a trade. I first determine if current conditions qualify as a trade, and only if so, do I determine position size: ‘below normal’, ‘normal’ or ‘above normal’.
As for the second question: you need to calculate impulse and corrective stats separately. Combining them in one population will not produce the results you seek.