BarroMetrics Views: The Wide Range Breakout Day
In today’s blog, I’d like to draw some conclusions from the various strands of the past two blogs. But before I do that, let me say that the approach I advocate is for the more experienced traders; novice traders are better off ‘seeing a pattern, executing the pattern’.
What distinguishes the novice from the experienced trader is the willingness to admit a mistake and being totally open to any information provided by the market. Novice traders tend to distort, deny and generalize information that fails to support their preconceived ideas. Experienced traders keep an open mind and are ready to act on the preponderance of the evidence while keeping an open mind on the ‘correctness’ of their choice.
Let’s turn to the conclusions:
- Define and test the trading patterns you use; and
- Be aware of the assumptions and context behind the patterns. Use them to decide whether or not the pattern applies in any specific trade.
Computers have made it easy for us to test our patterns; but as a result of this, modern traders sometimes misplace the value of context.
Thursday’s ES breakout provides a good example of what I mean by ‘context’.
In the previous blogs, I showed that the breakout bar on Thursday July 23 fulfilled the conditions of a WRB but because of the context, I determined that it was not a signal I was willing to take. Instead I am looking to go long on a retest of the breakout zone. Recall that a WRB suggests the retest will not take place because the underlying conditions are so bullish (or bearish on a downside breakout).
Can I be wrong about this – perhaps Thursday’s bar was a valid WRB? Perhaps; and I would be the first to admit that my assessment could be wrong. But this is true of every trade that I take. Ultimately, it is important that we have confidence in our judgment of the probabilities as well as in the approach we take.