Let the facts guide your decision making

When I looked at the charts I was asking myself “what is happening now and how is this going to play out into the future?” This is a problem because who knows?? No one can predict. To make it worse I was asking questions which gave life to a certain directional bias. For instance I would say “is price going to continue down here?” This question has unwittingly created a bias in my head that price is going down. Its very subtle and is a mind trigger that needed to be overcome.

How do I prevent the bias trap?

NASA dont ask questions when the rocket is fuelled and ready for liftoff. So instead of coming to a random price event with a question in my mind, I need to have a check system like NASA launch control does prior to ignition. There are no questions, simply a check system that provides permission for liftoff to occur.

Talk is cheap. How do we do it?

Step 1:
(5 second process)
Everything needs a context. I need to know where I stand in this chaos. What is my relative position in space and time? To answer this we start with a weekly chart and get some important levels. Nothing complicated. Low point and high point and anything that stands out. At this stage Im not concerned with the trend. Direction on the weekly is something else entirely on the 4hr chart.


Step 2:
(5 second process)
How we go to the day chart. Mark a few levels that stand out. Preferably only a swing low and high point. We fine tune levels on the lower time frames where they become more relevant. ON day and week we are only looking for big levels


Step 3
On the 4hr chart I can clearly see my week and day levels . The first bounce off the day level created a level. This could have been viewed as a lower high rally for a continuation down or the start of a new uptrend. WHO KNOWS? You let your method tell you how to react. Had you played the short, you would have lost or broken even. However, as soon as price broke higher above the swing point our objective must change to taking a long on a pullback. Not because I have a bias but because my method says high was broken and I take a long on a pullback.

But what is the target? Easy. The weekly level looks like a strong candidate. So lets buy all the pullbacks until we get near to that level. When we get there we take it easy and wait and see is price breaks or reverses.


Step 4
The following chart shows how moving averages can assist with our decision making process. Notice how I said assist? It is not the reason to enter, simply a helping hand to ease the chattering monkey in our head that is continuously going ape with uncertainty. If you are a moving average aficionado then the result is similar. This highlights the power of using discretionary cross system with price action.
So in the chart our moving average starts pointing up after price bounces at the day level. This is a good sign of the change to come. Then at our 1st break of the swing point we are good to launch on the pullback.

  1. Bounce of day level - check
  2. Moving averages changing direction and crossed over - check
  3. Level created with a break - check
  4. Pullback to level - check
  5. Target in mind (weekly) - check
  6. Good to launch.

Step 5
We hit the weekly level target. Now what? That is for you to decide. My method as outlined above will guide me through the next evolution of price. It is really simple. From here though I wait for signs of a reversal back to the day level or a break and pullback for continuation higher.


For the newer trader I hope this helps you in some way.
If you are a seasoned trader and see things that I can improve on then please do let me know.

Excellent post, Grantx! :slight_smile:

The concept of using multiple TFs as you do here is widely ackowledged as a sound principle in planning trades - and it certainly helps in generating discipline in analysing trades. It is almost impossible to fall into trading spontaneously and impulsively if one sticks to this kind of sensible routine.

The only point I would make is that I do not like to consider MAs as forming “support”. I don’t think their construction in any way forms a reason for price to pause and turn around. Afterall, the choice of MAs is entirely personal. Apart from a few widely-used MA values there is no reason why one particular MA value would impact on the entire market.

I think the better way to consider the function of your MAs here is only as an indication whether the price has reversed sufficiently to suggest the move is over or whether the overall direction remains intact [I]in spite of [/I]the reversal.The MA does not itself [I]influence [/I]the price, it is only a barometer measuring the extent and (ir)relevance of the reversals/retracements.

Maybe I am just being a bit “picky” here but I see a danger in starting to interpret MAs as levels of support and resistance rather than just a visual aid which either helps confirm the continuity of direction or suggest a possible end to the move.

Good work, Grantx! :slight_smile:

I’ve been only lightly seasoned, with some paprika, and apart from agreeing with Manxx, above, will simply say that I think your posts are really a great asset to this forum, and I thank you for them.

Yeah…! It is quite a nice and interesting post. It is quite helpful for the newbies to learn about Decision Making.

Excellent observation Manxx!
We get jumpy as traders when we encounter a drawdown on a trend (I do at least). Is it just a pullback or a reversal? Moving averages help us determine this. Thanks for your input.