BarroMetrics Views: Your Trading Plan 2 – Discretionary
Yesterday we were talking about trend and timeframes; we said that our trend identification needed to identify both.
To identify a trend, let’s start by defining them:
- Uptrends are higher highs and higher lows.
- Downtrends are lower highs and lower lows.
- Sideways trends are traditionally about equal highs and lows ( I prefer to say that if we don’t see an uptrend or downtrend, we’re probably looking at a sideways trend).
Next, let’s have a look at Figure 1. It’s the daily AUDUSD. What would your answer be if I asked:
“What’s the trend?”
My answer would be:
“Of what timeframe?”
The chart as it stands does not provide the necessary info. But, would it make a difference if we added:
- the weekly swing (blue line)
- the monthly swing (red line) and
- the quarterly swing (black line)
[Note Figure 2 shows the same data as Figure 1 (with the candlesticks hidden) except that we have drawn in the Barros Swings.]
We can now say that:
- The weekly trend is up. We see higher highs and higher lows.
- The monthly trend is probably up (because the quarterly swing line is up), and
- The quarterly trend? Too soon to tell. We can say that it is no longer in a downtrend, having breached the prior swing high (A). We need to see what it will do from here.
We need to identify the trend we proposed to trade because it’s the first step in taking a high probability, low-risk trade. So, if we are trading the weekly or monthly trend, we’d be looking to go long; if we are trading the quarterly trend, we’d be standing aside.
FIGURE 1 AUDUSD Daily
FIGURE 2 AUDUSD Daily
The next step in our quest for a low-risk trade, I’ll consider next week.