Trading Plan III

BarroMetrics Views: Trading Plan III

In Trading Plan I, I examined the differences between the simple approach best used when we first begin trading and one that increases our awareness of the probabilities for a successful trade. The latter used appropriately will increase our profitability. In this blog, I’ll review my own approach.

NLP (Neuro Linguistic Programming) has taught me that to successfully model anyone, you need at least to know his belief structure, and mental strategies. Well, the beliefs that support my methodology are:

  1. Any free market has a structure that can be discerned by a variety of means.
  2. My means are charts that reflect the prevailing (if any) line of least resistance i.e. prevailing sentiment and therefore dominant direction of the market in my timeframe.
  3. My main tool of discernment is pattern recognition – the patterns found in the charts and structures I use.
  4. Free markets are fractal and chaotic. This means that similar patterns are found in all timeframes. It also means that the various timeframes have an impact on one another.

My main tools are:

  • Barros Swings which distinguish timeframes and therefore identify the likely magnitude of a move. They are my primary toosl for identifying trends, the probability of continuation or change of the trend of a timeframe, the zones, setups and exit strategies. Consequently Barros Swings provide the data for risk assessment of a trade.
  • Market Profile and Market Delta provide the main source of support to Barros Swings by providing critical information on the likelihood of the immediate direction continuing. If we think of market direction as of a  car, then the relationship between volume forms the petrol (gas) gauge. They tell us if the car is moving efficiently (in Market Profile terms, facilitating trades) or if the car is running  empty (and therefore likely to reverse).
  • To this group, I include the Ray Wave: a wave theory that is more objective than the Elliott Wave. Place a number of ‘Ray Wavists’ in one room and you are likely to have most with the same count. The Ray Wave provides the structure for my price and time targets.
  • The secondary support group comprises  price and time targets, sentiment and momentum.

Together the tools provide the basis for a successful trade – which I define as ‘the consistent execution:

  1. Of our trading method: the method allows us to enter when the probabilities favour us and to exit when the probabilities cease to favour us. And
  2. Of our risk management and position sizing rules: the rules provide the basis for a position size that is appropriate to the trade; in addition, they seek to ensure that our Expectancy Return is positive. (Expectancy Return = [Average Dollar Win X Win Rate] – [Average Dollar Loss x Loss Rate].

My main pattern is the Tubbs Model (see Figure 1) – more on this tomorrow.

tubbs.jpg

FIGURE 1 Tubbs Model

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