One must realize there is a major dichotomy in trading. That is one should
“Trade the Trend”. The conundrum is, all moves have to start with the shortest of time frames creating a conflict in selecting a Trading Chart. Some traders pick the time frame they are comfortable with and trade one chart only. I have done it and it is fairly successful. Others add the Frontrunner watching only two charts. The Frontrunner is for insurance that the momentum isn’t reversing at time of entry.
This raises the odds of success. The majority use a Trend Chart, a Trading Chart and a Frontrunner.
I also like to use additional longer term charts for even more assurance. I have tried to establish the use of several charts with different time frames and types of data. I prefer to use at least one volume trend chart. I have also used tick and range data, but do not use either any more.
I use different periodicities for each instrument. I use at least two extended periodicities for the primary trend. I use two intermediate Trend Charts. My Trading Chart periodicities are small. I want to get in on trades before the masses realize a trade has started, and get out before they realize the trade has reached its maximum gain. Some may choose to use an ultra short term chart as well. This would be to use a 500 volume chart for immediate price action entry confirmation when using a 3 minute trading chart.
Why is it necessary to watch the longer term charts if I am trading such a small Trading Chart? They give me a heads up telling me if I am in a trend day, a choppy day and how strong the primary momentum is.
If the 45 minute and the 13 or 15 minute charts are steep together in a trend, I know I want to be trading that trend. Countertrend Trades can be taken, but specific signals must be seen.
The 22500 on the ES and the 2500 volume charts on the Euro are very helpful to confirm longer term momentum. It helps more than just seeing long term time minute charts, to decide when to take an entry.
In the screenshot below of two charts; one a 45 minute on the left and a 13 minute chart on the right, one can see a nice trend day. The 45 minute is in a strong uptrend and the 13 minute is doing the normal cyclical movement. That is the market moves, pauses, rests or reverses. It then resumes the momentum. When
173 the 13 minute lines up with the 45 minute, the primary trend is established. Trading against the trend will be discussed.
I must comment that the 45 minute chart is often overridden when EMAs are flat for example. Usually one would not trade against it in a strong trend. If the 45 minute chart Blau indicators are flat, and the intermediate and short term Trend Charts are giving a strong entry signal, then one could override the 45 minute chart.
Below is another example. The first two charts are the 45 on the left and 13 minute chart on the right. The 45 minute shows a downtrend. The 13 minute has a downtrend on the top left, a rally with a couple of green bars and trend resumption.
This is a good trade in itself. Basically it says the market is down so look for shorts.
174 Now take a look below at the 3 minute Trend Chart and the 8K volume chart, for the same time period seen in the two charts above. The orange circles show the corresponding downtrend movement, where a short trade could have been taken. The entry would have been at the orange arrows and lines. Some heat (trade moving against direction) was taken. Knowing the long term trend is down, gives us confidence to stay with the trade! This shows why we don’t want our Stop to close to the entry. Using longer term extended periodicity charts, as in this example, increases the trade probability. One would look to the Frontrunner at entry, to be certain a short trade is safe.
In the charts below, the 45 minute on the left is in a rally, but the trend has been down. This period is marked on both charts in the green ellipses. The question is, is this the start of a reversal or just a normal pause -rest? The 15 minute on the right is choppy. The 13 EMA is shallow saying any trade long or short is weak and risky. If one had a Mini Slam on this ES example, with the
5minute, the 3 minute, 8K and the Frontrunner in agreement, one might be looking for shorts. Days like these, when the 13 minute chart is choppy, are when a lot of traders get into trouble. Caution is the word as there is no definite trend. The trader is likely to experience volatility, within the trend direction, with resulting losses.
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If the 45 minute and the 13 minute are in opposition, but the 5 and 3 minute are with the 45 minute, one can assume the market may be in a short term rally or a Pullback on the 13 minute chart. Therefore, one can rely on the short term charts for the trading direction. If trading, one would be in a scalp mode. For most, it would probably best to just stand aside.
If one sees the 45 and the 13 minute charts with flat 13 EMAs as in the chart below, one can expect the 3 minute and the 8K volume charts to be choppy.
One should note as well, the Histograms are in opposition. The oppositions are marked with red lines. One chart is showing Convergence, and the other is showing Divergence. These are conflicting signals. They say trading the best Setups on the intermediate trend, and Trading Charts, may still result in losses.
This is one reason why a trader should step aside some periods. Some might be using shorter periodicities only, and can’t understand why a seemingly good trade doesn’t follow through! They blame the trading methodology. They say the
indicators don’t work, when in reality they simple haven’t looked at the big picture.
176 I will show a couple of screen shots of the ES, to again encourage looking at the big picture. The first is my monitor with the 45 minute, 13 minute and a 3 minute.
These would be my Trend Charts; the 3 minute is the intermediate, as I will be using an 8K volume trade chart for my entries. This is a simple arrangement.
Normally I would also use a 22500 volume chart and a 5 minute chart on the ES as well. On the Euro I would use a 2500 volume and a 5 minute chart. All of the EMAs and Signal Lines are pointing up, with Histograms above the Signal Lines.
The reader should have a good grasp now of all the indicators. This says we should only be looking for longs on the Trading Chart. One should have very high
probability trades.
177 The next screen capture is the 8000 volume chart. The purple arrows and lines show two ideal Setups. The first on the left shows an extended PUP with a
Breakout. The Histograms were above the Signal Lines and pointing up. The fact that the Trend Charts were so strong, gave the assurance this would be a good trade. The orange arrows suggest, if using the 3EMA system, one could take a long. There was a Divergence shown with yellow lines saying not to enter. This says price may go down, or will at least hesitate with indecision and chop. That is exactly what happened. At the second higher purple arrow and line on the right, there was a Pause Continuation Trade. The purple arrow points to an entry. This time, all indicators were in alignment. The stay with management tool of the 3 staying above the 5 EMA could have garnered a substantial gain. The essential point is that the longer term Trend Charts give a basis of what direction the Trading Chart will probably move!
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In the next chapters, we will look to the shorter term charts to take a position the longer term charts suggest. These will give the entries for the basic trades I
recommend. I will give the reasons for the type of trade to be taken, and the details making up each trade.
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