Charting Delusions

[quant...@gmail.com]

One of the problems many manual traders have with regard to presenting
ideas to programmers that they think should be programmable is that
ALL of the visual charts used by virtually every kind of trading
platform adjust the bar sizes relative to the screen size. What this
does is to distort the “True” relative bar sizes. The computer sees
the “True” bar sizes and where you might think that the bars are
relatively large – in truth they are not. This is of specific concern
for those traders that think they have to be in the market all of the
time.
The main problem with programming “constant” trading programs is that
there are minimum constraints placed on the entry and exit order
placement configurations which are based on the spread and volatility
of the price movements. The manual trader might notice that sometimes
they have difficulty placing an order when they get a message that
that the order didn’t take because there was some kind of conflict.
Besides the fact that the computer order placements will also get this
response you must account for both trade volume and “Spreads” against
the Take Profit and Stop Loss settings.

In other words let’s say that you are in the M15 time frame and you
are trying to place trades when the High to Low bar sizes are 10 pips
or less. You are also trading a currency that has a “normal” 3 to 5
pip spread. Looking at the screen you might think that these bars look
like all of the other average sized bars you have seen – but they are
not. Because of the screen distortion sometimes a 20 pip bar can look
just like an 8 pip bar.

Small bar sizes are usually a reflection of low trade volume. This
compounds the problem even further. Since the price move cycles during
these times are usually less than 10 to 20 pips, if you try to capture
a 15 pip profit you not only have to over come the spread – which
would net you only 10 pips if you happened to get the trade – you have
to over come the lack of trade volume that will delay the execution of
the trade. Because of the combination of delays against spreads and
jumping price moves because of low volume, 90
% of the time you will end up losing in these situations no matter
what you do.

The fact is that whether you try to trade these times either manually
or with an Expert Advisor it is a no win situation. The best policy is
– NOT TO TRADE DURING THESE TIMES. But, when you program filters into
the program to prevent trades from happening during low volatility
periods, as you watch the performance of the Expert on a chart you
start asking yourself – why isn’t it trading these price cycles that
look so good???

The fact is that it isn’t trading because the bars are too small –
just as you programmed it to do. And you have to come to realize that
there are times when what you might call “the general state of the
market” is advantages for trading and there are times when it is not.
The big advantage of Experts is that they can detect these times
impartially and they are not subject to the “Chart Distortions”. So,
it is important for the program users to understand that in many cases
even though the price moves look good on the screen the reality is
that the conditions are very poor for placing profitable positions.

Some broker platforms will actually have minimum limits on the Take
Profit and Stop Loss settings. For the most part I have found the Take
Profit minimum is around 10 pips and the Stop Loss minimum is around
15 pips. If you try to set the order T/P and S/L less than this the
trades will not be placed and you will get 130 or 131 error messages.
This is why the FAP tries to get around this by using Order Modify
operators instead of Take Profit and Stop Losses out of the box.

The best idea I think is to match these minimums to the price movement
and bar sizes and these are the basic parameters that determine when
the best trading times are. In other words I do not believe these
minimums are disadvantages, I think they are “very realistic” when it
comes to actually defining the best trading times.