Left Brain Thinking Conclusion

BarroMetrics Views: Left Brain Thinking Conclusion

As a rule-based discretionary trader, I use my position sizing to reflect my risk assessment of the current structure. In turn the position sizing is also determined by whether I am seeking to manage the first, second or last third. Each has its own considerations and objectives.

Take the AUDUSD as an example.

I have only last thirds left.

With the last third, my general strategy is to bring the stop to breakeven and exit via a trailing stop; or exit the position on a change in trend pattern in my trader’s time frame. Sometimes the market does not make its intention clear. So, to the extent I am unsure, I reduce my position size.

In the AUDUSD, I assess we are at 12-month swing and 13-swing support. In addition, Figure 1 shows the Ray Wave count with a structure that says we may see a correction from the high at {c} (0.9350) to the current lows at 0.8032. A normal retracement would take me to the zone 0.8850 to 0.8550. There is no way I would ride my last thirds from 0.8032 to .8550, let alone .8850. I’d expect to have a Change in Trend pattern somewhere along the way.

The Ray Wave provides an early warning signal.

Yesterday’s move to 0.8254 (better would have been a move above 0.8300) suggests the possibility that the current down move is over. Normally we’d see a sideways period, that is followed by a change in trend. But, sometimes we see a V-bottom type pattern.

Given that the down move has been thrown into doubt, I lightened my short position at an average price of around 0.8257. I will exit the balance on a change in trend pattern or on any daily close above 0.8356.

I like managing a trade in this way. it suits my personality and attains my trading objectives.

audusd-rw.jpg

FIGURE 1 AUDUSD

4 thoughts on “Left Brain Thinking Conclusion”

  1. hi Ray,
    You are a
    1. rule-based discretionary trader +
    2. continual monitoring/analysing (until the trade is closed)trader
    – not set-and-forget trader

    So, you could exit the position on a change in trend pattern in the trader’s time frame.

    For set-and-forget trader, or the trader who cannot continually monitoring/analysing he could only exit via an automatic trailing stop.

    Now, the big question is how to set the trailing stop
    – not too tight nor too wide

    (Andrea Unger uses Monte Carlos Simulation to analyse the trading system results with different configurations.)

  2. Hi Ray, Hope you and your readers had a great Christmas & New Year.
    The consideration i offer on the issue of profit targets, is that in back testing on a computer model, the edge is based on exact exit data.
    I think its a psychological call as you cant capture all the move, every time. But if you stray too much from the plan, you risk losing the edge.
    There is a saying in Oz, a bird in the hand is worth two in the bush. cheers baz

  3. Hi Baz

    That’s the issue isn’t it?

    No amount of testing will provide a guarantee that our exit price will be hit.

    So, we need some way to define what is close enough: take profits too soon and we lose our edge; take too late, and we may lose too much of our profit to sustain the edge.

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