BarroMetrics Views: What It Takes To Succeed VII
We’re at the point in the series where the rubber meets the road – at least so far as a trading plan is concerned. As a discretionary trader, my plan (rules) serve as a starting point as well as a check and balance for my intuition. If my rules dictate a course of action but ‘I feel as though I’d like to do something else’, it ‘heads up’ time. I check to see if my ‘flight, freeze or fight’ is in gear, or whether there is something my conscious mind is missing.
I mention this because I believe humans deal with subjective probabilities in a different way then when dealing with objective probabilities…i.e. when faced with uncertainty, we are more likely to fall back on our intuition. Anyway, back to the plan.
My first step? I ask three questions:
- What is the trend of the timeframe I am trading?
- Is it likely to continue or change?
- What is today’s bias likely to be – directional (up or down) or rotational?
The answers to the first two questions determines if I’ll be seeking to go long or short; the answer to the last helps identify the likely tactics I’ll be using to enter the position. Let’s take the AUDUSD as an example, my trader’s timeframe is the 18-day swing (monthly trend).
Figure 1 is a chart of the 13-week swing (quarterly trend). My current scenario is we are seeing the final leg of a change in trend triangle. If so:
- We should see a throwover to mark the ‘E’ leg.
- The minimum target for the ‘E’ leg is 1.0645.
- The probable target is 1.0800 to 1.0805
- The maximum target (if there is a triangle) is 1.0855.
Since the 13-week swing line direction is up, the 18-day swing trend will be up. At this stage, the trend is likely to continue. Hence I’ll be looking to buy dips so long as my reward:risk ratio is adequate. More next time
FIGURE 1 AUDUSD 13-week Swing