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...
By eliminating the time element in charting, TradingFX's Derek Schimming has been less fooled by mind games that traditional charts sometimes play.
We're talking about different charting techniques with Derek Schimming with TradingFX.com. Derek, you have a different way of looking at your charts than most time-based traders. Talk about that.
Absolutely. We chart the markets specifically in pure price. Our primary tool is range bar charting. In range bar charting, in comparison to a time-based chart, again there's no change in what is happening price wise, highs, lows, patterns, all that stays the same. It is the pure disassembling of the rapid price move, the reassembling of slower price moves, the enhancement and the improvement of how it handles indicators, oscillators, and tools and then the clarity. What we call a noise-free chart because when you compare them side by side, there is a visual difference, but from a practical standpoint there is a clarity and a better way to recognize what is happening in the market.
All right, talk about that. How does a range bar chart look? How does it apply itself?
Well range bar, the beauty of it as a trader in a time-based world, a trader will say I want to look at a 5-minute chart or a 15-minute chart. Again, in a rapid movement, they might want to step back and I'll look at a 4-hour chart. In a range-barring world, we're looking at the average trading range and the volatility of pairs. So we will adjust the range based on how much activity is happening in the pair or the market as a whole. As of recent, we've had much lower average trading ranges so we're cutting down the amount of range we look at. So then we chart the market based on the pure price movement. Time has nothing to do with it as a trader. Traders trade price, not I have to be out of this trade in 15 minutes. It's I need it to move and then I will be able to get out of this trade. In range barring, a new bar is not created until the current range is filled. It could sit in that bar for a while or in a rapid move, it will build them quickly. Again, no elongated candles, no thin lifeless market. A very consistent flowing display and I can assure you that every technical study indicator, oscillator, or tool will work more efficiently when it doesn't have the exaggerated pulls from rapid price or the diminished or the lifeless markets when things are happening, just happening so slowly. The indicators and everything gets to move consistently because the chart display that it's working from is also built on a consistent view. Again, a new bar is created when the range is filled, not because the clock is ticking.
Right, so I can see this being a benefit that as a trader visually on the chart, I can see when something is happening more readily because I can see the range bars moving rather than just a new bar every five minutes. It's not moving any faster. I'm not getting a feel for the momentum of the market, is that true?
Or when the market is not moving at all. It's just sitting on a bar. As a matter of fact, there will be times when you think is this thing on? You want to tap your screen. It's not moving. So it is truly a detailed difference. The only way you can disassemble in a time-based world is a one-minute chart. Anything beyond a one-minute chart, which I always say a one-minute chart will lie to you. If you want to see the market going up, look at a one-minute chart. If you want to see the same market going down, look at a one-minute chart. You can see anything you want to see depending on how far back you want to go on that one-minute chart. When we look at range barring, it doesn't matter the amount of range we look at.
We have a chart that we use. I have a zone chart that I use; a template in our system. The zones will use anywhere from a 10-pip to a 20-pip range. Again, depending on volatility, the pair, time of day, all that kind of stuff. From a trading standpoint, we'll look at more detail. We'll go into maybe an 8- or 6-pip bar. Again, volatility has a lot to do with what we look at. In every case, it's the detail and clarity that I'm after. You think about, I mean really, the worst thing a trader has to deal with is the elongated bars and how they handle that, the tails and wicks and how they handle that. You say oh, look at that. You see an elongated bar and see it move, oh that was an entry. You didn't know it was going to do that until the bar closed. You have no idea. It might be just talk wick or something. There's a big difference between elongated bar closing and not being closed yet. I'm seeing that incrementally happen and then the detail of that seeing the major areas of support and resistance, being able to look at, putting on a 25-pip chart or a 30-pip chart and going back in time and seeing the areas of supply and resistant, seeing support and resistant come into the market.
Again, it comes down to a clarity difference and that's an amazing thing. It's not that it's going to make trading easy. There's nothing that makes trading easy. This is a difficult art form. It can make it easier once the trader gravitates towards this method of charting. Charles Dow started it by doing point and figure. Point and figure is a pure pricing model. It has limitations because (a) you can't do anything to it technically; and (b) since it charts vertically, most traders don't know how to read it and interpret it. Candlesticks show the open, the close, the high and low. All relevant information, but again why time?
So our model is looking at the best of both worlds. I still show the open and low, open and close, the high and the low. I'm still charting it horizontally in a bar format. I've just completely removed time. Ours is the only charting software in the world that was not built with a time foundation looking at only the price. So it's a merging of point and figure and candlestick charting if you will. I think that's the dramatic benefit and the difference.