Tuesday, 29 December 2009

Johnny One Note

The famous Judy Garland sang: "Johnny could only sing one note And the note he sings was this Ah!"

One of the many "Ah" revelations or epiphanies I had during my trading career was that I should only trade from one bar chart. At one time or another, I used minute, tick and volume charts. I also used multi time frames which to me was using two or three charts, each with a different time frame, to look at the same market. The logic was to find the trend and trade in its direction. Each chart, of course, had its own set of indicators. The result was analysis paralysis. I looked for everything to line up and usually by the time they did, the move was over.

I tried trading from just a Market Profile chart. Too many false starts and I couldn't get the timing precise enough not to keep on having to take lots of small losses.

I came to the realisation that each time frame has its own rhythm and trend. I found a time frame that suited me and only look at that. It makes everything simple and I have no conflicting information from external sources. As you will see at the webinar, Kiki and I use the MP for our context and support and resistance. The Profile tells us where we should do business and what to expect when we put on a trade. Looking at the order flow at these points means that we have two separate ways of knowing when we are wrong: the Profile tells us or the order flow tells us and sometimes both do.

Using this single range bar chart gives us a clarity that enables us to focus on what is happening in the now. When I was looking at multi time frames or trying to correlate with other markets I was totally confused.

For me, its no use telling me that my 3 losing trades will be more than made up when I finally hit a winner and ride it. Firstly, after 3 losers in a row, I won't be there for the 4th and secondly, if I finally get a winner, I will take my profit too early in fear that the profit will turn into a loss. Learning to swim for me took a lot of effort. I didn't believe I would float until after I could prove it to myself. You need this proof from your trading methodology and that is the reason, as I said in yesterday's post, that I taught Kiki using a very structured and measured training plan.

I can't emphasise enough that the simpler I made my charts and my rules, the better I traded. Sometimes I still try and remove more from my charts but have not done so because each indicator tells me something a little different. I just looked at todays' DowEuro50 chart (below):

I acknowledge that it's a low volume day, look how the volume indicators completely misled you. But looking at the Profile which showed price bouncing off the POC, EMAs and CCI trending up, you would have stayed out of trouble. I know I have said ad nauseum that it's the whole picture that's important and that a mechanical approach wouldn't give me the results I want. This chart is a perfect example of that. I just look at what price is doing in CONTEXT. Kiki is getting there too.


  1. Do you trade any other markets/instruments beside the Eurostoxx50 and ES?

  2. I have traded everything in the past including FX and physical commodities.

    I'll talk more about this in tomorrow's post.