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A Profitable Trading Method In Detail - Part I - Articles Surfing
First things first - this is not some revolutionary new method. Its in fact a very simple trading methodology based on a few time honored principles and indicators. The core of this method owes its origin to the work of Walter Bressert and is based on Walter Bressert's cycle indicators.
The trend is your friend - you've heard it a million times before and guess what - its true. This method only trades in the direction of the trend. Furthermore it only trades when the trend of both the short and medium term time frames are in the same direction (more on this later). Why? Because we want to pinpoint entries which move quickly in the direction of profitability. Entries in the direction of the trend can be precise. Counter trend trades are often sloppy and very difficult to time.
Time is as important as price - what does this mean? The large proportion of traders absorb themselves in following price action, looking for a set up which matches what they see. While this may work for traders that have learnt phenomenal levels of focus, detachment and self discipline, for the developing trader this way of trading often leads to hallucinations (seeing things that aren't there), overtrading and getting caught in the chop. When we follow the principle that time is as important as price, we shift the emphasis of our focus. We place our focus on timing a trade setup, watching for the entry to set up using our timing indicators (cycles) and only when we see that the time is right do we look for price confirmation and a precise entry point.
The effect of this is
1) We stay fresh because we can relax our focus when our timing indicators show that the time is not right.
2) We can avoid getting caught in the chop and all the frustration (and loss!) that doing so entails
3) We focus all our energy and concentration on effectively executing the signals that have the highest probability for success.
Use multiple time frames. In this method we trade on multiple time frames simultaneously. We use a short term chart (3 or 5 minute) and we use a medium term chart (13 or 20 minute). We only enter trades when those two charts are confirming each other (ie. That their trend and cycle direction are the same). We also use a longer term chart (60 or 102 minutes) to keep an eye on the bigger picture and we use a very short term (1minute) to effect our entries.
If the short term trend or cycle is up and the medium term trend or cycle is down, what is going to happen? They will fight each other and this manifests as chop. What happens in chop? It's very hard to time a precise entry, which is what we are all about.
What happens when the short and medium term trends/cycles are in the same direction? They support each other, they strengthen each other and this leads to decisive price movement.
The key here is to understand this: price moves up and down all day. We are going to let a lot of it pass us by - we don't care. Why? Because what we are interested is pinpointing precise entries that will immediately move in our direction and give us a profit. You may see price moving strongly in one direction while you are on the sidelines, and you may say "damn, why aren't I getting a piece of that?". The question is could you have timed the entry or would you have placed 2 or 3 losing trades trying to get in, exhausting and frustrating yourself in the process?? We are looking for easeful, stress free entries that have a high probability of success.
Make sure you don't miss the next installment of this article in part II.
Copyright © 1995 - Photius Coutsoukis (All Rights Reserved).
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