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March 23, 2016

How My Trading Has Changed

In the year or so since I ceased publication of my Member letter, my methods of analysis and decision-making have changed significantly. These changes may, in fact, have been slower to arrive while I was a publisher, as a great deal of discipline is imposed on a writer to be consistent in his methods. Freedom from the public eye has therefore allowed for more experimentation and discovery.

The effort required to develop a successful and repeatable trading system also imposes a desire to protect the inner workings of that system. However, a few of the more general points of evolution are discussed in this article, and I also share opinions and the occasional trade on Twitter.

Cycles are no longer a methodology, but merely a tool
My trade decisions are no longer based solely on cycle charts. Cycle counts have become too irregular, especially on the daily scale, which was the time frame on which most trade decisions were based. In fact, I almost exclusively focus on weekly cycles at this point. Whether a price series in undergoing a weekly cycle ascent or descent provides a bias on which to base trade decisions.

The majority of my trades are now swing trades
My execution model involves rules that are looser when trading in the direction of the weekly cycle and tighter when trading against the weekly cycle. I will rarely take and hold a position through an entire weekly cycle ascent or descent. The exceptions are major turning points when I anticipate a decline into a multi-year cycle low or an initial bounce out of such a low.

There are no slanted lines on my charts
Defining a trend with a trend line is a fool's game. I drew these lines on my charts for far too long, and should have expelled them as soon as I discovered TrendBands (Keltner Channels), which is a far superior way of defining a trend. Trend lines look nice a tidy on many charts, but those lines can be cracked, followed by the re-establishment of the trend, forcing the practitioner to redraw the line. Folly. A trend line offers meaningless information. So the only lines on my charts are horizontal, drawn at important pivot points. You will find that your favorite oscillator (I have developed a fondness for Stochastics) provides delicious information when price is testing a pivot.

The majority of my trades are now in currencies
I have developed a reliable system for swing trading currencies. The approach basically involves defining momentum on the weekly scale and then trading in the direction of momentum on the daily. I may only get a half dozen, quick trades out of any one currency pair in a year, but there are many pairs to trade. Equities have been relegated to the realm of investment
We could spend hours debating the difference between trading and investing, but in my book, the distinction is one of intention: I trade for income while I invest to build wealth, and I no longer trade equities. Success at equity trading simply requires way too much effort, scanning thousands of issues, being on alert for earnings, worrying about unscheduled announcements, etc. That time is better spent analyzing currencies and commodities, which do not carry management risk. Of course, I still own equities in my IRA, but I do so in a manner in which I only rarely have to look at the account.

I have recently been flattered by several inquiries as to whether I will ever rejuvenate the Member letter. While I do miss writing, as well as the interaction with fellow traders, my current schedule (which involves ample time with my boys) does not allow for nightly publication. I am still toying with the idea of a weekly letter or perhaps a private Twitter account to share signals, but I make no promises. Prosperous trading to you all...

 

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