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I’m not a computer programmer by any stretch of the imagination. I have no plans to become a computer programmer either!
But I was thinking back to my high school computer classes and basic computer programming. Computer programming involves writing a set of instructions in a programming language, explaining how the computer should act under certain circumstances. One type of instruction is what is called a “conditional statement.”
A “conditional statement” tells the computer to act in a certain way, but only IF a certain outcome is achieved first.
These statements were typically written in the following format:
IF (something happens), THEN (do this), ELSE (do something else).
In day to day to life, we might say “IF (weather is cold) THEN (wear warm clothing) ELSE (wear summer clothing).
The important thing I am emphasising here is the process – thinking in terms of “IF, THEN, ELSE” and this is how I think in terms of market analysis.
Too many traders are stuck in the mindset of what I call “IS, THEREFORE”. They say the market IS going to go up, THEREFORE they will buy.
I’ve been around the trading world long enough to know that market forecasting is a fascinating science, but no matter how good you get at it, you can still be wrong. I often quote WD Gann’s record – he would often trade at a 90% success rate, which is amazing, but that also means he was wrong 10% of the time, which was why he advocated the use of stop loss orders and sound money management.
When I analyse my currency charts, I look to see how the market action is unfolding. I look for favourable trading setups and I wait for these. Chart 1 below shows the current market action on the US Dollar/Japanese Yen (FXUSJY in ProfitSource). This is following on from last week’s article, which showed the current top at 92.32 came in after three similar sized ranges in the market, indicating a pullback.
Chart 1
click to enlarge
In last week’s article, I indicated that I am expecting more upside in this market. Despite the falls overnight, I am still expecting more upside, but I also need to be prepared in case my analysis is wrong.
I am watching two price targets – one, around 96.40, the other around 94.70, as shown below. I also have a few pressure dates I am watching – but I’ll save those for the students who attend the Gann Mastery Seminars! These prices are shown in Chart 2 below.
Chart 2
click to enlarge
I also note that as this market falls, it is approaching a potential Double Bottom around the 88 level. In Chart 3 below, I use my Price Projections from the potential Double Bottom to give me additional price targets to watch, IF the Double Bottom scenario occurs.
Chart 3
click to enlarge
Interestingly, the 150% and 200% milestones line up with my previous two price forecasts. But what does it all mean?
For me, I look at these scenarios in terms of “IF, THEN, ELSE” statements.
IF the market Double Bottoms around the 88 level, THEN I will look to trade long into these price levels, ELSE I will patiently wait for another trading signal.
IF the market makes a top at either of my price forecast levels on one of my pressure dates, THEN I will look to go short, ELSE I will patiently wait for another trading signal.
That’s how I look to set up a market. I don’t get every turn or every move that happens in the market, and I am certainly not in the market all the time, but when I AM in the market, I am in the market on my own terms, with the odds in my favour.
The hardest part for many traders is the “ELSE” – they can often come up with a forecast, but when it goes wrong, they try and force a view on the market, rather than patiently waiting for a new, more favourable scenario.
Be Prepared!
Mathew Barnes
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