As I take more trades with my systems, I notice one key ingredient is missing; the trigger. Even though my trading system would let me know when to buy or sell, it doesn't tell me the optimum entry. That's when I realize that I lack the trigger aspect of my system. Usually a trigger comes from looking at a lower time chart. For example, if you do technical analysis on the daily chart and your system has a signal, you have to look at the lower time frame (8hr, 4hr, etc.) for the trigger. If the price in the lower time frame breaks a certain pattern in support of your daily analysis, then that's where you buy. You can also wait for a same system confirmation in the lower time frame before you open the position.
Another important point about looking into the lower time frame is that you would usually get a better risk/reward ratio. You are able to determine the highs and lows in the lower time frame and be able to place the stops there; something that is not apparent by looking at just one time frame.
Another important observation I had is that of all the indicators that we have, none can match the power and accuracy of observing the price action. In this trading world, trading patterns are dominated not by mechanical calculations, but by the actions (thus psychology) of the traders. It is easy to draw a few trend lines on the price chart and see where these traders decide when the appropriate times are to sell and buy. Sometimes these levels do not even coincide with the logic of the fundamental news. Thus proving that traders sometimes are irrational and act on impulse.
Therefore my systems are limited in performance in this very dynamic market. And as time goes by, more and more traders would get into the game thus leaving this market even more volatile. I think the flaws with my system include not only the absence of trigger (I only look at daily charts) but trying to contain the market action within a very rigid set of rules. For example, in order for me to buy in my range system, I have to wait for a number of confirmations. The price has to close lower than the -1 standard deviation, the SSK>SSD, and SSK <=30. These set of conditions do not happen too often. A lot of times I would miss out many moves because I had follow my systems to the letter.
Granted that following one's systems with patience and discipline does have its merit, but when you realize its flaws, you must revise it if not abandon it. It is a similar situation to someone who cannot follow any particular system due to his impatience for profits because you stubbornly follow a system you know is flawed once you realize it and you don't do anything to change it. I think that has been the case with me since I had used the systems for a while with very modest profits, I fear that revising or abandoning the systems would make me undisciplined.
So now I am at a deciding point where I have to regroup myself and focus on revising my trading habits. Some of the changes I have in mind is to do analysis on the weekly chart and enter into positions (trigger) on the daily chart. I would also just focus on simple techniques of observing price action like trend lines and noting support and resistance levels. The indicators that I would use would probably be just BB bands and moving averages. I want to keep the chart simple and less cluttered. And finally I intend to trade all the majors and the crosses total of (18 currency pairs). I plan to implement these new changes next month.
Another important point about looking into the lower time frame is that you would usually get a better risk/reward ratio. You are able to determine the highs and lows in the lower time frame and be able to place the stops there; something that is not apparent by looking at just one time frame.
Another important observation I had is that of all the indicators that we have, none can match the power and accuracy of observing the price action. In this trading world, trading patterns are dominated not by mechanical calculations, but by the actions (thus psychology) of the traders. It is easy to draw a few trend lines on the price chart and see where these traders decide when the appropriate times are to sell and buy. Sometimes these levels do not even coincide with the logic of the fundamental news. Thus proving that traders sometimes are irrational and act on impulse.
Therefore my systems are limited in performance in this very dynamic market. And as time goes by, more and more traders would get into the game thus leaving this market even more volatile. I think the flaws with my system include not only the absence of trigger (I only look at daily charts) but trying to contain the market action within a very rigid set of rules. For example, in order for me to buy in my range system, I have to wait for a number of confirmations. The price has to close lower than the -1 standard deviation, the SSK>SSD, and SSK <=30. These set of conditions do not happen too often. A lot of times I would miss out many moves because I had follow my systems to the letter.
Granted that following one's systems with patience and discipline does have its merit, but when you realize its flaws, you must revise it if not abandon it. It is a similar situation to someone who cannot follow any particular system due to his impatience for profits because you stubbornly follow a system you know is flawed once you realize it and you don't do anything to change it. I think that has been the case with me since I had used the systems for a while with very modest profits, I fear that revising or abandoning the systems would make me undisciplined.
So now I am at a deciding point where I have to regroup myself and focus on revising my trading habits. Some of the changes I have in mind is to do analysis on the weekly chart and enter into positions (trigger) on the daily chart. I would also just focus on simple techniques of observing price action like trend lines and noting support and resistance levels. The indicators that I would use would probably be just BB bands and moving averages. I want to keep the chart simple and less cluttered. And finally I intend to trade all the majors and the crosses total of (18 currency pairs). I plan to implement these new changes next month.
