Video 2 Link

 BarroMetrics Views: Video 2 Link

Here is link to second video: http://www.barrometrics.com/opening-range-swing-system-video-2/

BTW I am not sure what I do that encourages emails rather than comments. Please do post your comments to the video site or this blog rather than send emails. Thank you.

In yesterday’s video, I made a comment that  emotions are a necessary part of the decision-making process. We had a few emails about this – essentially asking for research. 

If you Google “emotions necessary for decision-making process”, you find the research by Damasio, Bechara and others.

Also…..below is a comment by Denise Shull (therethinkgroup). She not only supports the idea we need our emotions to make decisions; she also suggests a device to bring our intuition into play: we imagine how the counter-part to our trade would react.

Unfortunately, that does not work for me – the device seems to cloud my intuition. But that’s me; I pass it on in case it may work for you.

“A variety of research studies conducted in the past decade reveal that great trading stems from qualitative, not quantitative, thinking. Whether watching the brain of someone who is correctly reading price or talking to someone who successfully manages billions of dollars, the researchers find the same things. Market Intuition – a form of people prediction and Risk Differentiation – a form of self-knowledge, distinguish the great traders. 

It’s not that quantitative data is irrelevant. It just doesn’t hold the whole answer. Probabilities are one clue and in fact, even looking at a distribution of possible outcomes produces a qualitative response in the human brain. A normal bell-curve induces a feeling of confidence whereas a skewed curve produces greater anxiety. It’s called anticipated affect and if you think about it, it makes perfect sense.

According to the latest neuroscience, emotion is not only NOT to be avoided, it “organizes our memory and determines our perception” (Brosch, 2012). This means it is a data point worth investigating.

So — how do you develop these qualitative thinking styles to superimpose on your objective, quantitative inputs?

You first accept the idea that you need to. Once you embrace these realities of risk decision making, you work on imaging who exactly is on the other side of your trade or will be on the other side of your future exit? Ask yourself if everyone is seeing what you are seeing, will they see it later or will they not see it at all?

In Risk Differentiation or self-knowledge, get to know your emotional cycles as well as you know your market cycles. This way you can separate your impulsive feelings from your intuitive pattern recognition – and have more of the first thinking style, Market Intuition”.

5 thoughts on “Video 2 Link”

  1. Hi Ray, I watched video 1 a couple of times last night. The journal felt like Karma, meeting self.
    I had never thought much about left brain or right brain before but i could feel its effectiveness.
    With meditation plus visual imaging, i affectionately renamed the the mind section as
    Buddha Metrics. But it all made sense and it may seem odd but i felt a sense of joy immersing in the process, being in the moment. It really is an interesting video, that type of journal leaves you no where to hide and to be brutally honest with self. I had really under estimated the mind section in trading. Illuminating work Ray, thank you. cheers Baz

  2. Hi Ray,

    Another great video, thanks!

    I found 2 things really intriguing – in a good way!

    1. The realization of the ebb & flow states and their management. This technique can be used only if the trader trades the same strategy/technique over the same markets? I mean if he changes the strategy (more or less) or goes into new markets he needs to reset the historical expectancy stats no?

    2. Your Stop Loss placement, beyond the swing low/high by a percentage. Really interesting how you concluded this. To be honest I’m tempted to look for tighter SL placement to get a higher Avg Win in spite of a lower Win rate. E.g. a couple o fpoints (pips) above the swing high instead of the swing high + max extension percentage. Did you run some stats on this so the overall expectancy is higher if you add the max extension? Is it true for all markets?

    Thank you,
    Sorin

  3. Hi Sorin

    Thanks for the comments.

    1. Our testing shows that the markets don’t matter; but the strategy has to essentially remain the same.

    Some changes don’t make too much of a difference, e.g. in my case, when I introduced MIDAS to enhance zone identification, it made only a marginal difference.

    However, if I were to stop using the Barros Swings, then I’d expect I have to recalculate the stats.

    2. As far as stop loss placement is concerned, we did run tests spanning different levels from swing extremes and directional entry bars.

    Across markets, using the beyond ME stop, means you are least likely to be stopped out, only to have the market reverse and move in your direction.

    The worst stop is a few tics beyond a swing extreme.

    In a rotational market, the stop is likely to caught before the market reverses. Interestingly this stop produces the worst expectancy return – the better Avg$win fails to compensate for the lower win rate.

    You can use the stop if you can differentiate between rotational and directional moves.

    If used, when a market has ended a rotational structure and has begun a directional move (IPM), the stop is less likely to be caught.

    For IPM etc see Wed’d video on Method

  4. Potential problems with Turtles volatility position size formula:
    1.
    Assume that for 14 days, the volatility is very high with very bullish bars, where
    Open = Low
    Close = High

    The Turtles volatility position size formula (14-day ATR) will REDUCE the position size.

    So, for a Long player in the bullish market, he reduces his position size and profits.

    2. Assume that for 14 days, the volatility is low with bearish bars, where
    Open = High
    Close = Low

    The Turtles volatility position size formula (14-day ATR) will INCREASE the position size.

    So, for a Long player in the bearish market, he increases his position size and losses.

  5. Hi Paul

    I’d make three observations:

    1) is there a money management system that will guarantee we won’t suffer a loss when we increase to maximum size; or guarantee that, when we adopt our minimum size, we won’t have a profit? If you find such a system, I hope you will share.

    2) If we go long in a bear market, that’s not a position sizing problem, that’s a method issue.

    3) That said, let me restate my main point: we can still lose going long in a bull market with a maximum position size, and vice-versa.

    That’s just the way it is and its a cost we pay for playing the game.

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