catch_a_flyTrader Tip: How to Catch a Fly Using metaphors to help train our brains to develop good trading strategies can be quite useful. In this Trader Tip I want to point out a concept they may help in developing these plans. Looking at the many Trade Plans we receive one thing that tends to be lacking is – anticipation. Looking at some current “price derived” indicators or the latest candlestick pattern at the moment of the trade is often reactionary, not anticipatory. Let’s use a metaphor to see this point. So how do you catch a fly – with your bare hands?

Markets can be like buzzing flies flopping to and fro and can it get quite frustrating to catch the right move. To catch a fly (or the market move), coming up slowly with your hands or trying to swiftly come up to it directly will not work. A fly has evolved (or has been Intelligently Designed) to see your moves. It sees things at higher speeds than you. It can easily escape your moves, just like you could escape the moves of a turtle. They have developed different protection mechanisms – anticipatory speed to escape.

Using your superior intelligence to catch the fly, instead of going directly at the fly, anticipate where it might escape to and set your cupping palm trap to catch it just above it. In a matter of a couple tries, it is actually quite easy to catch a fly with your bare hands with this anticipatory technique. So let’s apply this to trading.

price_anticipationInstead of looking at the current time series chart bar and the associated “price derived” indicators (which are often lagging), where is the anticipated price likely to go in the next 1, 5 or 15 time series chart bars? Market patterns tend to repeat themselves with 50 to 70% accuracy. Which is good enough if we have a PSR (Profit Stop Ratio) of better than 1 to 1. The “price pattern” indicator can be used to identify the Trigger area in your Trade Plan. Hence incorporating a “price pattern” indicator in your Trade Plans can be key. So should we forget to use these more traditional lagging indicators?

Like the fly, we can also slow market time down. Once in the Trigger area, we can then slow time down, by dropping down to 1/4 of the original time series to precise the actual Trigger entry. Here is where these “price derived” indicators can come to bear. So it is a combination of the two types of indicators, “price derived” and “price pattern.” We do note that of the traders we have seen, the traders that use only “price derived” indicators, tend to be less successful.

So give this Trader Tip Trade Plan design strategy a think, and see if you can use this idea when developing your next Trade Plan.

Learn more on this, review of the news headlines, technical analysis and more on your daily YouTube Blue Point Trading Morning Call. Click here, or watch below this Trader Tip in video format.

Proudly powered by:

Pepperstone Practice Trading

Trader Tip: How to Catch a Fly

Home » Trading Strategies » Trader Tip: How to Catch a Fly

Pin It on Pinterest