We are already moving into our third week back since the seasonal break. We took the time to review our trading plan. It isn’t just in the words we have written but, and probably more importantly, in our approach. The ‘how we do it’ is one thing. Our collaborative methodology is another.
Last year we anchored our trade readings around the lower time frame chart analysis. In other words, we day traded. Which, of course, means that a trade entered at any point during the trading period would be exited before the end of the day.
This year we have started to move our anchor period to the one-hour charts; this is a wonderfully flexible timeframe. It is a period that is on the apex of being classified as either a lower or higher timeframe. Many deals finalise in the same session, but a trader may have to be comfortable holding for several days.
Any change in price is relative
Okay, holding for several days to an investor or a higher timeframe swing trader makes them think ‘what is the big deal’? The answer comes down to relative price change. An investor may have judged a trade entry based on a weekly chart and maybe placing high reliance on fundamental rather than technical information. Often, several days, weeks or months down the road and to this individual more than likely nothing has changed. Price is similar or an average weekly bar or so higher or lower in value to where she started.
Meanwhile, if we zoom in to the other extreme of our short-term trader, life has been a perpetual whirlwind of activity all within the same period in which our investor friend has seen little difference.
How many markets?
The various trade levels can be called ‘position’, ‘swing’ or ‘active’. But again, this is relative to a timeframe. An ‘active’ or ‘scalp’ approach on a one-hour bar chart would, over a similarly traded price range, be a ‘swing’ by a lower timeframe day trader.
It is generally best that technical traders select an anchor chart period that best suits their strategy, personality and commitment.
As we have moved to the hourly anchor, we have also significantly increased the number of markets we review. Last year on the lower timeframe, we reviewed no more than three currency pairings. With our change in anchor, we are viewing more than 20 pairings.
The analyst and the trader mindset
Such a change presents an analytical challenge. There is a clear demarcation between the roles of an analyst and a trade setter. The former requires clear ‘what if’ conscious brain thinking. The latter is very much a subconscious endeavour. To mix the two asks for doubt and therefore for unwarranted hesitation, which in turn leads to confidence issues and the introduction of the primal instincts of fear and greed.
A consideration with the lower timeframe day traders too, but the good ones teach themselves to stay in the moment (the subconscious) confident in their backtesting (the conscious) preparation and practise. Higher timeframe traders often move their analysis to the weekend.
The hourly anchored trader (30 minutes to 4-hourly also) have, in this regard, a more difficult proposition. On these anchor levels, the market moves too quickly for the benefit from weekend analysis and unlike our true day trading friend over too many demands to not require constant switching from analyst to the trader. In other words, it is a two-person role.
The colour codes help
We have trialled this two-person approach with pleasing results since our return to work. Through our Trading View software, the analyst will categorise a market using the colder colours of blue, purple and then to green to indicate to the trader where we are relative to each chart. Once the analyst nominates a green (usually with a chart explanation via Skype), the trader is clear to trade. The trader will designate orange as an order placed (again, with a transmitted chart but this time from the trader to the analyst) and red when a trade activates.
This approach, simple in concept, has the advantage of maintaining a clear demarcation of roles and therefore, appropriate brain activity. ‘How champions think’ by Dr Bob Rotella explains the concept marvellously.