4 Steps to Better Trading Decisions

03/07/2012 3:30 pm EST

Focus: TRADING

Robert Miner

Author, High Probability Trading Strategies

Sound trading strategies hold up even in today’s more volatile markets, says Robert Miner, who explains the four factors he considers before making a trading decision.

Robert Miner is my guest. Bob, these are crazy times, lots of volatility…do you have any type of practical trading strategies that you can share with us?

I’ve been doing this for about 26 years, and the volatility is so much greater now than it used to be. Like in the 80s or 90s, we had a ten-point day in the S&P and that was a big day.

Now, we have that before we finish our breakfast muffin. So we have these 30-, 40-, 50-point days, but the same technical strategies we used ten, 15 years ago are working today.

It’s just that we have wider-range days, wider-range weeks, and a little bit more volatility. The same momentum and time and price strategies that I’ve been teaching for almost 20 years are applicable to today’s market.

So do we have to just expand our own consciousness to deal with this volatility?

Yeah, really you do. It’s the new norm now; having the wide-range days and fast moves and all of that. It’s still the same technical approach that we’ve always used that we use today.

And what is that approach that you advocate?

Well, in dynamic trading, we look at four specific factors to make trading decisions. One is multiple time frame momentum strategies. The second would be our price reversal strategies, our time reversal strategies, and pattern.

So we put those four pieces of information together to identify a trade opportunity, and then, of course, I teach specific entry and trade management techniques.

See related: Bob’s Comprehensive Entry/Exit Strategy

Do all four of those strategies have to line up for you to make a trade, or can you use three?

At least two or three. All four of them aren’t always going to line up.

The two that are the most important are multiple time frame momentum strategies and the price reversal strategies. They are the two most objective.

As long as those two are lining up, and ideally we have some time target around that same time, we usually have a pretty good set-up with low capital exposure and a good probability of gain.

Bob, what do you mean by “most objective?” We’re not putting our own ideas on top of that?

Yes, yes, exactly. It’s real easy to have an opinion of where the market is. What you do is you tend to filter out information that’s contrary to that opinion and only look at all the information that supports that opinion.

See related: Stop “Confirmation Bias” Before It Starts

So our dual and triple timeframe momentum strategies are 100% objective to identify a potential trade. The price analysis is very objective to identify the price reversal zones, and then we have specific entry and exit strategies we use with those.

A lot of people know about the price momentum. Can you talk about the reversal a bit for me?

Yeah, the approach I take to trading is that we want to trade with the trend. Of course, it’s another thing to identify what is the trend, and that’s particularly difficult in the early stages because the trend hasn’t developed yet.

Price reversal strategies are when we identify high-probability price support zones—very narrow range zones—that have a high probability of completing a correction. If we can identify the end of a correction, then we can position ourselves in the direction of the probable trend.

How do you identify it though? That’s the big question.

Well, I use three different strategies. Usually the three types of price analysis I do will identify a fairly narrow range.

Most people are familiar with Fibonacci retracements. That’s in every software; it’s pretty common. The question is when you put these three or four retracements on, which one is it going to stop at, if it is even going to stop?

You know, the 38 to 50, the 62, the 78.6%, so I have two other price strategies we combine with the retracement strategies called alternate price projections and external retracements. Those two types of projections tend to fall near one of those typical Fib retracements, and then we have a high probability that’s going to be support or resistance.

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