Directional Day Filter

I am going to stress on this point again – simplicity is the key to successful day trading. No one can assess the direction of the world markets in a definitive manner. If they could, it will be easy for them to amass all the wealth in the planet – and that too within a short period. We can only look into the probabilities and make our own assertions. The market will prove whether our theories were right or wrong.

Now, directional day filter as theorized by Dr. John Clayburg might appear like a fancy concept at the first glance. However, the essence of this trading system is very simple.

Take the average of the high and the low made by the instrument. If the price is trading above it, stay long and exit the trade at your discretion. Likewise, if the price stays below this average value, then initiate shorts only. Exit when you feel that you have made enough profits for the day. Rinse and repeat every day; ideally, you should be able to see the profits in your trading account growing.

This is a simple but effective solution to steer yourself clear from the usual noises present in any market. As a rule of thumb, it is better to take the average of the first five minutes. But Dr. John Clayburg advises us to find that perfect time period (it can be the average of the first five / ten / fifteen / thirty minutes) for our favorite trading instrument on our own.

This so-called directional day filter indicator will allow the traders to stay on the right side of the market. Trading with the trend will always pay handsomely. You might be a champion swimmer. However, if you swim against the natural flow of the river, you will drown. One of these days, I might try to pen a few words about trading with / against the trend.

The same system also goes by the name of Opening Range Breakout (one must not confuse this with Toby Crabel’s ORB).

Checkout DDF for further information about this system.

One Response to Directional Day Filter

  1. Pingback: How to Trade the CBOT mini-sized Dow with High Accuracy | Day Trade 101

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