Derek Schimming is the co-founder and lead trader at TradingFX, and brings 25 years of experience to the trading community. He began his career in 1988 as a registered representative and financial consultant. After enjoying a successful and lucrative career, ending his tenure in the top 1% of his firm, Mr. Schimming decided to venture out on his own as a professional trader. Over the next two years, he became a student of trading, and was mentored by Harvey Houtkin, who is regarded as the father of electronic trading. Mr. Schimming quickly became a standout protand avid trader. In 1996, after successfully trading on his own and teaching some former colleagues, he expanded his trading floor operations and made his training available to the public. By word and mouth and some positive press, his firm grew rapidly, grossing over $1 million in revenues the first year and ultimately becoming one of the largest privately-owned equity trading floors in the United States. As a respected person...
In the forex market, focusing on price changes and disregarding time makes for a cleaner and more efficient view of technical trends, says Derek Schimming of TradingFX.
My guest today is Derek Schimming from TradingFX.com, and we're talking about tracking currency pairs in price ranges versus time-based trading. So Derek, talk about what the difference is there.
Well, when you look at pairs in pure price, you are eliminating the time because when it comes down to trading, time really has nothing to do with it. It's just a standardized measure of looking at the price movement and we've always done it on time. As a trader, I trade the price, so time becomes irrelevant, so by looking at a pure price format, you get a much cleaner, clearer, noise-free charting environment, if you will, and one that I think is definitely more conducive of success.
So, just tick charts then, every time the price changes, you get another dot on the chart?
Yes and no. TradingFX introduced range bar charting to the industry and the reason that we feel it is so important, is by breaking incremental moves down by the price movement. A new bar is not created until the current range is filled and so what this does is in a rapid pricing environment, it disassembles a rapid price movement. You think about an elongated candle on a chart.
In our methodology, that would be broken down incrementally, unlike a tick chart that's just going to take a 0-50 price move and say 5, 10, 15, 25, 30. That's not what happened. So, we're looking at what really happened. It's the chart that doesn't lie and shows you every incremental movement, based on price. So, a rapid price move is disassembled. It becomes more legible, identifiable, and tradable and a slow price market, think about a market that's not moving, time based charts move on. Your indicators and oscillators go dormant. Something's happening. It's just not happening very fast.
So, our charting method reassembles the slower price movements and again makes it more legible, identifiable, and tradable. If the market moved consistently all the time, it wouldn't be necessary, but the market moves in an orderly fashion about 20% of the time. The other 80% of the time, it's either rapid price moves or very slow environment, so bar method is going to be a clean, consistent chart at all times.
Alright. So, you touched on this, but you say that it improves technical studies and also helps with the lag of those oscillators. Talk about that a little bit more.
Absolutely. Again, if you think about how, and look in your mind create your favor oscillator or even moving averages or really any technical study indicator oscillator tool, think about those real long candles again. Think about how it pulls the indicator with it. It stretches or exaggerates it and then the movement, the oscillator or indicator usually goes dormant for a little bit while the price and everything comes back in line.
If I'm breaking the bars up and they're consistent, then the movement of my indicator and oscillator is also going to be as consistent and because of that, if you look at them side by side and we do it all the time, you'll see that the indication is almost always, not always, but the indication is also earlier. It might be minutes. It could be a lot more than that. There are some cases where it's 30 minutes, maybe an hour before.
Sometimes we feel like we're very early, even though our signal is there and we wait for the herd to come in. We say, hey the time-based guys are going to be coming in here soon and we're looking for that opportunity and actually we try to take advantage of that.
So, the idea here is just to spot these patterns early and see them more clearly on a type of trial basis.
Absolutely, because I'm not changing highs and lows. I'm not changing what happens. A double top is still a double top. Double bottom. Uptrend. Breakdown. There are only seven things that can happen in the market. I'm not changing that. I'm not changing highs and lows. Nothing has changed. It's the clarity. And so the clarity is one thing.
Think about your time-based charts and the enormous amount of wicks and tails. In our charting method there are still wicks and tails but they are minimal, so when they do happen, they have much more relevance. When the price gets to the top and there are some wicks, you know it really is reaching for a price, as opposed to the price just kind of went up and down inside a time bead as it was going along. So, that cleanliness of the chart. They look better, but it's not just a aesthetics. It's actually the clarity.
It takes a little getting used to because traders look at it and it seems unusual to them. There's more space involved. You know, if I look at bar that moved by 50 pips and the next one is 20 pips and the next one is 5 pips and then 2, 1, 3 and you look at a range bar chart and I'm doing it at say 8 pips, every one of those is going to be 8 pips. Guess what? There's going to be more bars involved. So, I need more charting space, but that's not an issue.
So, I look at that. It looks different, but once you understand, you spend any time and that's what we do, we teach people to understand what they're looking at and why, then all of a sudden the reality of the clarity difference, seeing the incremental little areas of support and resistance in a rapid price move, see where supply. Think about an upward movement.
As it came up, it ran into some resistance and still went up. I'm on a 15-minute chart and it just shows a long bar. What about where there was some supply in there that held it up so when it comes back down, I then can anticipate potentially what was there is still going to be there later on, as opposed to just painting over it.