Irrelevant Bar Features

This is the third in a series of articles starting with the October 2, 2006 article entitled "Trading With Charts".

Candlestick bars provide more information than the OHLC bars. Sometimes too much information to the extent of being misleading.

Let’s say you have a system for entering and exiting trades based on the High or Low of a bar, but that the relationship of the Open to the Close is not part of your system.

You could apply your system to either the OHLC bars or to Candlestick bars. Both provide all the information you need for your system.

The Candlestick bars goes a step further and color codes the bars distinguishing those whose Close is higher than the Open from those whose Close is lower than the Open. That extra bit of information can be ignored. But if you sometimes ignore it and other times get influenced by it, then that extra bit of information is triggering you into inconsistent application of your system.

Trading using a system requires consistent application. Inconsistent application will ruin your results or make any study of the results invalid and unreliable.

Beware of the extra information in your charts that are not part of your system. Better to eliminate those extra bits of information so you can apply your system consistently. You can do that by choosing a type of bar chart that has just the amount of information relevant to your system and that does not contain extra potentially misleading information.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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