It’s That Time of Year

BarroMetrics Views: It’s That Time of Year

It’s that time of year – you know the time when we make promises that this year it will be different – this year we’ll …..(lose weight, have a positive ROI in our trading etc, etc). Most times the new year resolutions last a week, if that.

So, my question to you is: what will you do throughout the year to produce a different result in your trading for 2015?

It’s clear that unless you do something different, you will keep getting the old samo, samo. It’s also clear that the difference has to be something essentially different i.e. different in essence rather than just difference in form. For example, are you looking to produce better results by finding a ‘new system’ or are you going to try a new fangled way to suppress those pesky emotions – you know the ones that keep hijacking great trades and turn them into mediocre ones?

Both of these ‘solutions’ may have a common base – that our trading is governed an attempt to by-pass the feelings of discomfort brought about by the feelings of uncertainty whenever we are in a trade. Let’s face it, the nature of markets is to be uncertain, that is what makes our profits possible. But as humans we are hard-wired to move away from uncertainty. Indeed, it’s said that feelings caused by uncertainty register in the same region of the brain as intense pain. Unless we take appropriate action, these feelings will rise, and too often these feeling cause us to sabotage our trading.

Unfortunately, finding a new system isn’t going to solve the problem. A system addresses the probabilities of success  – the domain of the neocortex (left brain) – it won’t resolve issues brought about the limbic system. Whatever system we use, at some point, the feelings of discomfort will arise and we’ll again have to deal with this issue.

So, if emotions are the problem, why not seek to suppress them? Unfortunately, that won’t work. The work of Antonio R Damasio and others have shown that not only is suppression not desirable for decision-making, it is not even possible i.e. we need our emotions to make effective decisions (see e.g. Feeling Our Emotions).

So, as traders, what can we do? I’ll look to answer this tomorrow.

3 thoughts on “It’s That Time of Year”

  1. Hi Ray,

    What I will try to change in 2015:
    1) Move up in the timeframes, this will give me more time to make a decision and hopefully give me the chance to catch some of my automatic emotional responses.

    2) “Prove” the rules that iI use in my trading system by statistical analysis. (This will be the subject of my next post).

  2. Hi Ray,

    Initially I wanted to email you but I remember you want questions through your blog so other people can see it and hopefully help them also. Sorry if I got it wrong and should’t post here…

    ——

    There is a part in your NOT book that is not clear to me. It’s the calculation of statistical price & time windows. Since this is your main tool to find trade zones I think it’s important to know the exact calculation details. I searched the blog archives but didn’t find a comprehensive answer.

    For the sake of an example, I will use the current AUDUSD daily chart as an example. Dark thick swings are 18 day swings, and red swings are 5 day swings.

    You say that to identify the statistical time and price windows you calculate at least 40 instances of impulse and corrective swings. My questions are:

    1) in the 40 instances of say impulse swings, does it matter if are both bull and bear swings? I mean you can have swings from downtrends and uptrends. An impulse swing in an uptrend is a bull swing. An impulse swing in a downtrend is bear swing.
    2) in congestions do you skip the swings since they aren’t part of any trend?

    I find it really tedious to compute considering the above. I wanted to automate the calculations for my platform but find it near impossible to do. Because identifying congestions mechanically is a near impossible task to program.

    3) And last question, considering the above questions are clear, how do you calculate the zone to wait for price to retrace? E.g. the zone marked in the attached image. I’m thinking that a logical place to start looking for shorts is after at least a “normal reading” black line correction, that is at least mean -0.5 std dev. Am I on the right track?

    Attached image: http://i.imgur.com/mzb1nsN.png

    Thank you for your time!

  3. Hi Sorin

    Thanks for the comment.

    Yes post here rather than by email.

    I’ll answer your last question in a blog rather than in the comments section.

    As for the others:

    1) I make no distinction between bull and bear impulse moves. I use both to calculate impulse stats.

    2) I skip congestions when calculating impulse stats. I use them when calculating sideways stats.

    3) I agree calculating stats manually is a chore. That’s why, Market-Analyst now has a function to do that semi-automatically. I still have to manually identify the swings; that is relatively painless. After that MA does the rest. See forthcoming blog.

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