BarroMetrics Views: A ‘Preparation’ Example II
We are looking at an example of preparation.
In my last blog, I had identified:
- I wanted to be long the USDJPY
- What price I wanted to see before I would go long, 95.27
- That I wanted to wait until after Non-Farm Payrolls before taking the trade.
In preparing for the trade, I considered two scenarios:
- The minimum price target (95.27) would not be attained before N-F
- The minimum price target (95.27) would be attained before N-F.
Since we did see 95.27 before N-F, here, I’ll focus on this aspect of the preparation.
An hour before N-F, I refined the scenarios:
- Scenario A: The figure would have a bearish effect: we’d see acceptance below 94.22 (given the range prior to N-F, 253 points), I considered it unlikely we’d see confirmation as this would have meant a daily range of over 300 points - an unlikely event). So, as the indicator of a bearish effect, I settled a 240-minute bearish conviction bar after N-F.I would stand aside if this scenario eventuated.
- Scenario B: The figure would be bullish. This could take the form of either be (a) a strong up move immediately after the figure or (b) a move down followed by a reversal.
- Scenario B: I decided that I would be a buyer on a bullish conviction close at the close of the 60-minute after N-F.
- Scenario B: I determined that my maximum stop would be below 94.22 but that I would move the stop up below the entry bar once I entered the trade.
- Scenario B: If my stop was at 94.22, my maximum entry price was 97.02.
- Scenario B: Assuming a stop at 94.22 and an entry at 97.02, my first exit was at 102.62
That was the left brain preparation; then came the right brain where I spent 15-minutes visualizing the actions (2) to (5) (I’ll usually spend at least 10-minutes and no more than 20-minutes on visualization). The idea is to make the execution as close to automatic as I can possibly make it.
As it was, I entered at 96.802. I raised my stops to 94.47; as a consequence, my first exit was 100.97.
I go through the same process in managing a trade. In this case:
- I determined that if the USDJPY breached 96.78, I’d look to exit.
- When the USDJPY broke below this price on June 11, I exited the position at 97.2 and 97.11.
In summary, preparation for me is both a left-brain and right-brain activity. First I create scenarios and then visualize them so that execution is automatic should one of the scenarios play out.