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All Safety in the Market students should be familiar with David Bowden’s expression “Get to know your contract like a cow knows its calf”. I struggled to take this on board in my early days, because it seemed there was just too much to learn! I had to learn about swing trading, filling out orders, analyzing charts, finding trades, learning about price forecasting and finally, learning about time analysis.
When I looked at a chart, I could see literally hundreds of dates, prices and ranges – where to begin?!
It is easy to get overwhelmed by this scenario, so I thought I’d share the way I dealt with this dilemma in my own market analysis on the Euro (EC-Spotv in ProfitSource).
Firstly, I will say that there is no shortcut to getting to know your market – you must learn the techniques, then you must apply them to your market one by one, systematically. There is no other way. By doing this, you will learn to master your techniques, and at the same time master your market.
The first thing to do is to identify the major turning points you wish to study. You can do this by using the Turning Points (TP) tool in ProfitSource. We will use only Primary Turning Points, as these relate to the monthly swing chart, and therefore give us the big picture turns. This can be seen in Chart 1 below.
Chart 1
click chart for more detail
For the Euro, we have around 50 turning points to investigate. From each of these turning points, a monthly swing range began. As traders, our job is to take a piece of these moves, in order to generate our income.
In order to determine the best way to trade this market going forward, we simply need to back test all the prior moves, to give us an idea of how this market works.
If we see a technique that calls the majority of these turns, we place a higher rating on this technique going forward. If we find a tool that seems to be of little benefit to us, we either rethink the way we use this tool, or disregard it.
We don’t need every tool to line up perfectly every time – we just need consistency in our trading.
Take out a notebook, or start a document on your computer, for each market you wish to trade.
Then, make a list of all the Primary Turning Points on that market, in its history.
Next make a list of every technique you use. This can be anything from swing charts, ranges, moving averages, MACDs, Elliott Wave, Squaring Time and Price or Gann’s Fourth Dimension.
Now, take every technique, and apply it to every turn.
The only difficult thing about this is having the patience and determination to see it through.
When you are finished, your book should be worth its weight in gold to you. It will give you a sense of accomplishment, a thorough knowledge of your market, and confidence to go forward. At least, it did for me!
Be Prepared!
Mathew Barnes
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