How Come There’s Always Gotta Be Rules?
In light of today’s pathetic market action in gold, I want to specifically highlight 2 key components of the algorithm and why they are so important in trading.
The first is time and price. The reason I developed the algorithm started from my belief that certain time periods taken with specific price levels are more important than others. What we need to do is isolate those and make sure they are our signal points for entry and liquidation.
Since they exist, whether I can isolate them or not, the only manifestation we are going to see is market price move rather quickly away from these points. Our objective then is to enter a position and then have it quickly go in our favor so we are in a position of the “free trade”.
The second is time of day. Just as in any sporting endeavor, where you are at in the game often times dictates strategy different than other times in the same game. Trading is no different here, and specifically not only the time of day, but also how much time is left in the day as well.
So what does it tell us when an entry point price doesn’t move? Well, it tells me that the point wasn’t as important as the algorithm said it was; perhaps it wasn’t a pivotal point.
I have written before of the importance of time of day on profitability. My experience proves to me that as the day wears on you have got to be more and more aware of just how much time is left before you commit to a position.
Again, a sporting analogy will prove insightful. If the game is tied, do you become more aggressive, or does your defense become a little more conservative, unwilling to give up the big play that might end the game?
Our whole objective in laying rules and identifying entry and liquidation points is to put the game of trading into a probability distribution that favors us. If the distribution doesn’t favor us, why play?
Have a good weekend everyone.
-vegas
