The Trading Plan II

BarroMetrics Views: The Trading Plan II

Yesterday I ended by saying that if I had to learn to trade all over again, I would  start differently. Today I’ll begin by looking at that.

If I had to do it all over again, I’d start with a simple set of four rules:

  1. A buy when the trend changes from down to up.
  2. A buy when there is an ongoing uptrend
  3. A sell when the trend changes from up to down; and
  4. A sell in an ongoing downtrend.

With only four rules, I learn ‘to see a trade, take a trade’ in a straight forward and simple manner. This is why in the Habits of Success, I adopt Cardwell’s RSI approach (with my own added inputs) to define:

  • The trend of the trader’s timeframe
  • The zone for a trade
  • The entry and initial stop
  • The profit exit.

Readers of Nature of Trends will note that with this approach, I do not use multiple timeframes to assess the trend. The reason is the more simple I can make the rules, the easier it will be to execute the maxim: ‘see a trade, take trade’. And this is a far better approach for novices than the one I take in Nature of Trends. It’s better because at the novice stage the focus is on establishing the foundations of success by creating habits of consistent execution and risk management.

But as our foundational skills grow, so  should our market knowledge. The increase in knowledge will afford opportunities and distinctions that would otherwise be unavailable.

If we select the E-mini S&P futures (ES)  and compare the RSI rules taught in the Habits Of Success with the approach I take using the tools in Nature of Trends, you’ll see what I mean:

  1. The RSI method would not be looking for a trade: there is no recognizable trend in the trader’s timeframe. The ES was in a downtrend. But since the March low,  the ES penetrated a significant high; and the RSI has exceeded the bear market reading of 65. However, while we have seen a negation of the bearish trend, we have not seen the elements for a bullish trend. Hence the RSI method is out of the market.
  2. The Nature of Trends’ approach has identified a potential low-risk, high probability of success trade with a superior reward to risk ratio. For full details register for the Forum through the video registration icon. But before you hop over to register, make sure you read Monday’s blog: Why All the Habits of Success Are Critical

An approach, that has as its foundation,  understanding the ‘nature of markets’ requires a degree of self-awareness and self-discipline not normally possessed by newbies. It’s better to start with a simple method that has an edge and progress to the more sophisticated approaches once the foundations for success are in place.

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