Issue 57
FOCUS ON HIGHER GROUND - Rick Ratchford
Most traders that I talk to, when asked, tell me that they always consider first, and predominately use Daily price charts. Maybe out of habit, or because most of us end up trading at that time level that this has become the case for most. But is putting so much emphasis on Daily charts (or Intraday) as opposed to the higher time frames (i.e. Weekly, Monthly) the best approach for traders who are not in and out of the markets each day?
Experience has taught me that you can find out more about the character of a market, and its likely direction for the short-term, by studying the Weekly price chart rather than any other time frame. Simple indicators, such as the Stochastic, are much more accurate in providing oversold/overbought signals as opposed to the lower time frame charts. Considering the Stochastic indicator, for example, we can see on the Daily chart that it often gets pegged either at the overbought or oversold extremes for lengthy periods of time. On the Weekly chart, however, these rarely occur in comparison.
The Stochastic indicator is just one obvious indication of the benefits of spending more time viewing Weekly price charts over that of the lower time frames. Market cycles are much more predictable on the higher time frame charts as opposed to the Daily or Intraday charts.
Because most traders focus on the Daily or Intraday charts by a much larger margin than the Weekly or higher time frames, you can see this in the more erratic pattern formations found in these lower time frame charts as traders place their buy and sell orders to make market. For the remainder of this article I'm only going to make reference to the Daily chart (low time frame) and Weekly chart (higher time frame).
The Weekly chart is a much more concentrated look of mass psychology as opposed to the Daily chart. For the sake of example only, say each day brings 100,000 traders to the market and each only makes one trading act per day. That would mean that each price Daily price bar represents the mass psychology of 100,000 minds making 100,000 market actions. In contrast, a single Weekly price bar then would represent 500,000 minds making 500,000 market actions.
Now, if you consider that 1 inch of a price chart may hold about 10 price bars, that 1 inch of market patterns is representing 1,000,000 minds and market actions for the Daily price pattern, but 5,000,000 for the same amount of space on the Weekly chart. When you consider the word 'Mass', which has more of it? The Weekly chart of course!
Therefore, you get a much clearer view of where all these minds, when grouped together (i.e. individual traders, commercial traders, Fund traders, etc.), are headed overall. One day the bears can overpower the bulls. The next day the bulls can overpower the bears. But on the Weekly chart, you can see the overall result much more clearly than on the Daily chart. You can also with higher probability determine which way the market is likely to go for the short to intermediate term.
Anytime I sit down to analyze the Futures and Commodities markets, the first chart I always look at first is the Weekly chart. It just does not make any sense to me to look at a Daily chart without having some clue as to the likely direction the market is going so as to affect my bias on the Daily chart. Once it is clear to me that the 'masses' are pushing ahead bullish or bearish, I can then look at the Daily chart and make my trading plans in tune with the direction the market power is headed.
This is not the first article I've written on the subject of focusing more on the Weekly chart. That should indicate to my readers how serious I am about the role Weekly charts plays in my analysis and how much I believe it will help improve the analysis of others as well.
If you find yourself spending more time using the Daily charts to analyze the markets for trading, and you are not daytrading, I encourage you to consider seeing the bigger and more accurate picture of market direction.
CHARLES DRUMMOND - DRUMMOND GEOMETRY - Barry Blanchard
Regarding your request (in the last newsletter) for Drummond Geometry. I have taken the complete course offered by the P/L School Of Drummond.
Geometry P/L meaning Point and Line Charting. Just so you know, I have been investigating market systems, theories, methodologies and indicators for some 12 years now. Having been disillusioned with all of them I figured what the hell I may as well go for broke and make Drummond my last stop in the long line of painful searching.
I can honestly say that it was well worth it. In my opinion and that of others I can say that what Charles Drummond did for market analysis is on par with what Einstein did for Physics. It is without a doubt the best that is out there!!. The course is long and expensive but well worth it.
It works in any time-frame, any market, and it adapts to any kind of market condition. Drummond explains that there is only 5 kinds of trading in the market: Trend Run, Congestion entrance, Congestion action, Congestion exit, and Trend reversal.
The methodology goes on to explain how to recognize each of them and to anticipate the next kind of trading based on the markets signature. It leads rather than lags the market and even the indicator package that they have places all of the Drummond lines on the chart for the bar that has not yet opened. A feat that the tech guys at Tradestation said was impossible to do. But they did it.
Drummond unlike other methods of analysis only looks at 2 bars at a time rather than the entire price set, and then draws the geometric points of support and resistance for the up and coming bar. Whether it be yearly, Daily, or 1 min. They also use multiple time frame coordination to bring it all together. If you want a method that will last you for the rest of your life and does not need to be curve fitted or optimized to work then it would be in your best interest to go for it. Excellent work!! If you have any more questions feel free to E-mail me at barry.blanchard@3web.net
TRADING SIMPLICITY - Mark Crisp
Trading is one of the strangest endeavors I have ever come across.
Most of us start by using, or believing we must use, complicated trading strategies in order to extract profits from the markets. We think the markets are a puzzle that only the very best minds can work out and profit from.
Therefore we either develop or buy complicated sounding trading systems and theory's. As time goes by and our accounts diminish we either do one of two things. We quit and go on to the next money making project or we start learning better ways to trade.
And you know what the better ways to trade usually mean trading much simpler systems than we originally traded with. Some of the very best traders make millions a year with systems and methods most would simply find "too easy." The more successful we get in our trading and the more profits we make the simpler the system will be?
Why is this? When in almost every other walk of life it is the opposite.
Well no-one has the correct answer but here's my view:
"There are no secrets to the markets. They trend up, they trend down, they chop sideways. And that's all they ever have and all they ever can do. No-one can predict the future. So as long as you have a system which will capture some of those moves and you cut your losses short when you are wrong then you must make money over the long run" There's my 2-cents worth."
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