The Daily Market Forecast... Filter or Not?

Thursday’s Results: Neither suggested trade yesterday triggered.

Quick Tip: Filter or Not?

Are there market conditions that your strategy performs better or worse in? Probably so. Price is either trending or not and volatile or not. These are very different conditions and knowing with evidence how your strategy performs in each of them is important.

Why? Because you’ll be able to filter out trade setups in conditions that are not ideal. These filters become rules in your trade plan, which is a living document requiring this very type of updating.

You’ll need to document hundreds, even thousands of trades with several data points to find the evidence. One important data point to capture on every trade (taken or not) is the average true range (ATR) of your higher time interval. This tells you how volatile price is.

For example, our team day trades the S&P futures using volume profile (one of several strategies they can access to choose trades from). The best measure of volatility for this is the daily ATR. Lately this has been over 100 points for an extended period. In 2017 you rarely saw a day over 20 points!

By documenting the performance and segmenting results by ATR we found some loss-saving evidence. In this case when the ATR is greater than 60 the performance suffers. Save your money, don’t trade. Or use confluence with other data points to get a higher probability setup.

You can probably back-test this for your trade results easy enough. Plot the ATR over the life of your account and compare it to your trade results in your statements. You might be surprised.

Today’s Best S&P Turning Points:

Sell 4116.25 stop 4121.50.

Buy 3979.50 stop 3973.75.

Trade Fearlessly,

Mike Siewruk

P.S. What’s more important in trading? Math or emotions? Learn how to change your unwanted behavior here.