Indicators  |  FEB 2008

Trading With The Directional Ratio by John Jay Norris

Trading With The Directional Ratio by John “Jay” Norris Whether you trade long term, short term, or intermediate term, you need to know the direction of the trend. Here’s a simple way to find out. If you are an active trader, or if you manage traders, you probably already know the importance of differentiating between a “trend trade” and a “countertrend trade.” By using the highs and lows on the chart to determine overall direction, it should be a simple matter to determine a market’s current stance for a particular time period, be it 15 candles or 60. However, once you add up the long-, intermediate-, and short-term trends on the daily, 240-minute, and 60-minute charts, the moving parts start to blur. UP, DOWN, OR SIDEWAYS To help gauge the trend on the different time frames, I break it down into simple numbers. There are three things a market can do: go up, go down, and go sideways; and there are three different time frames to do it in: long term, intermediate term, and short term. That’s nine directional determinates, or a directional ratio, that when tabulated can help define trend trades versus countertrend trades at a glance. Imagine how this can help you in the decision-making process when scanning multiple markets on multiple time frames in search of familiar patterns and trade setups.

by John Jay Norris