Errors of Judgment a Trader Can Make

BarroMetrics Views: Errors of Judgment a Trader Can Make

In the chapter I am writing for Wiley, I am writing about how Barros Swings help define the trend of trader’s timeframe and how the Swings help answer the question: continuation or change?

If you think about it, there are three types of errors a trader can make:

  1. Failing to correctly define the current trend, it’s structure and whether the trend is likely to continue or change.
  2. Entering too early or too late. Both subject the trader to financial stress.
  3. Incorrect position sizing.

For me, making sure I am correct about the trend and its possible continuation is the most important. And in this regard, Barros Swings have proven invaluable.

Let’s take the AUDUSD, for example,

Figure 1 shows the 18-day swing (monthly trend). Assuming one applies the traditional Barros Swings Theory, then the price action after the Upthrust Sell Change in Trend Signal has been ‘sloppy’ (see chart for what I mean).

The impulse move prior to the change in trend signal was normal in terms of magnitude and duration. One of the advantages of Barros Swings Theory is the ease with each we can calculate the stats for impulse and corrective moves.

So, the question is can the higher time frames shed light on the AUDUSD’s current direction and duration.

The 13-week (quarterly trend) shows a breakout and a correction where although the line has turned down, the swing low is not the low point of the correction. I have stated the implications of this event in the chart. Usually we’ll see at least a re-test of the primary low (.9536).

So what the 13-week swing is saying is the current sideways, choppy price activity is  not over until we see a retest of .9370 to .9536. Acceptance above the upside maximum extension (1.0619)  would negate this scenario.

This is why I love the Barros Swings. It allows me to formulate scenarios with benchmarks. The benchmarks allow me to define the probability of success and risk.

blog-adus-18-d.png

FIGURE 1 18-day Swing

blog-adus-13w.png

FIGURE 2 13-week Swing

1 thought on “Errors of Judgment a Trader Can Make”

  1. I totally agree with the written above. Reading Ray’s book and understanding how the market environment changes through the Barros Swings has taken out alot of discretion out of my trading. I dont have to guess whether a change in environment has taken place anymore, Ray’s structural approach has provided me with an impeccable edge.

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