Trends II

BarroMetrics Views: Trends II

Let’s first look at the assumption I was referring to in the previous blog.

Before I talk about the assumption, let’s first consider why we seek to label the type of structure an instrument may be in.

For me it’s a matter of providing:

  • a strategy (i.e. a) long – or short, rotation or one timeframe,  b) where do I get in i.e. a zone), and 
  • a way of assessing my risk. 

So, in a sideways congestion and in an uptrend,  may both provide a buy signal, but where we enter and the manner of entry (breakout or retracement) is a function of personality and the market structure.With that in mind let’s turn to the ‘assumption’.

My friend assumed that all trends offer the same opportunity i.e. all trends are the same. In fact, of course, they are not.  If you consider Figures 1 & 2, both may be said to be trending but I’d find the trend in the USDJPY easier to make money in than the AUDUSD. Indeed, if you use a  breakout strategy, you may find that you’d be losing money trading the AUDUSD.

One tool useful in this context is the Kaufman Efficiency Ratio. I don’t use the tool, but students who do use it, have given it 5-star ratings. 

What tools do I use and how to I assess the trend? More on Monday.

———-

Turning to the competition.

The key item here was my friend says he makes money in trends. The question I posed: what was a possible dangerous assumption? The answer I was looking for was ‘one strategy for all trends’. That is, he failed to distinguish between the different types of trends.

The most popular reply (i.e. we can make money trading congestions) failed to take into account that by not trading congestion markets may mean he could be sitting on the sidelines for long periods, and may mean he may forgo opportunities, these would not cause losses. And, for this reason, I would not rate the ‘assumption’ as dangerous.

No one came up with this so, the first 3 answers,  Shui Sing, Ryan and Paul will win a prize. In addition, I liked the answers from Michael, Sorin, Baz and Gassah. So, I’ll send you a copy as well.

Congrats to all winners! The prize has been sent out. Let me know if you haven’t received it.

7 thoughts on “Trends II”

  1. hi Ray,
    My last writing in Trends about Wendy’s comments, I wrote:
    “Option traders can make profits in:
    1. uptrend market
    2. downtrend market
    3. sideway market

    If 80% of the time the market goes sideways, she could learn from Thomas to sell options to collect premiums 80% of the time lah! 🙂

    Haha, so I did mention trading in a sideways or congestion market lah!

    ___

    Also, how you define congestion?
    – Only for 5 pips and less range?

    Then, considering the costs of spreads/commissions, may be only option traders can make money.

    For XABCD pattern sideways market, with a range, say 50 pips, we can make money in both directions.

  2. Also, in Trends, I wrote:
    “TRENDINESS
    – which stage of the trend now?
    – the extent of the total trend?
    – will the trend continue from this time?”

    So, given the same pattern of trend behaviour, at different times/stages, the Trendiness for making profits are different.

  3. Thanks Ray, great prize, thank you very much.
    Is there a particular part of the book that you found poignant and how it affected your trading analysis?
    Imagine if those guys back then had access to mainframe computers to ease their work load, what would they have discovered.
    thanks again cheers Baz

  4. Trend could be a very misleading terminology.

    May be, swing high / swing low could be better words for novice-less successful trader.

    So, please master Barros Swing lah! lol!

  5. >

    After the writing, I asked myself
    – Did anyone wrote a book, or taught about trendiness?

    – Any matrix for objective evaluation of trendiness?

    Then, immediately, I was reminded of the book:

    The Nature of Trends: Strategies and Concepts for Successful Investing and Trading
    – November 28, 2007

    by Ray Barros (Author)

    ____

    I read this book a few years ago, felt that it was heavy staff, difficult for novice traders to understand and implement the concepts taught.

    How nice if there is a trendiness matrix (based on the book) for objective evaluation of trendiness, or at least, systematic subjective evaluation of trendiness to help novice trader to trade all kinds of trends profitably.

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