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A free course on Trading with multi time frames. Enjoy!!
Fellow Friends and Traders,
It's not very often that I read over 200 pages these last few days and find very little worth relating. This is one of those times. Looking ahead this week there is even less to report on the economic scene that could move this market sharply in either direction. It's been quite a trading year so some rest is in order.
Multiple Time Frames Training with Example Put Trade
This gives me a chance to review the technicals as NET would teach them. Today we will concern ourselves with trading "multiple time frames". Generally, a good part of the time traders are trading only what's immediately in front of them. Day traders may only look at lower time frames, say 5" or smaller. Swing traders may look at a 60" chart or even a daily one occasionally. Less active traders find daily and weekly charts with trend lines and moving averages useful. Each trader group has certain advantages as well as definite disadvantages.
As NET we look at all time frames from the monthly down to the lowly Tick chart. Yes, we realize all time frames are not always in sync but when the majority are we find that we are able to bet more money in those situations because we find the higher the probability of success is derived from larger picture. This NET technique is opposite of what many single time frame technical traders do. Additionally, these traders rarely change their trade size lacking the confidence provided by the larger time frames.
I estimate 50-55% of our trading bias as derived from the from the 30" chart. Only 30% of NET trades come independently from the 5" or lower time frames especially on Thursdays and Fridays when we focus on trading the weekly expiration options. The remainder comes from the daily or higher time frames. These trades would tend to favor the swing trader who can trade monthly options, ETFs, stocks, commodities, etc. for days or even weeks.
You will find four charts with this week’s multi-time frame trade set-up starting with the monthly chart, followed by the daily confirmation. Entry timing is confirmed by the 30" and the trade is entered on the 5" chart Thursday morning. In this case, either puts or short S&P E-minis can be used. However, the put trade returns a greater leveraged trade without excessive risk.
The NET Training Charts
NET Training Chart 1 of 4 2009-11-10 Monthly
NET Training Chart 2 of 4 2009-11-12 Daily
NET Training Chart 3 of 4 2009-11-12 30 Min
NET Training Chart 4 of 4 2009-11-12 5 Min
Chart 1: Monthly Chart
The monthly chart displays a multi-year down trend line from the October '07 highs to this week (2009-11-09) in the 1100 area. This down trend indicates a point at which the market should have trouble breaking up quickly and may take a number of tries or retracements before the intermediate term uptrend continues.
Chart 2: Daily Chart
Next, we note a multi-month trading range on the daily chart while showing a powerful up-trending Oscillator and price pattern (higher highs and higher lows). Since late July ’09 the NET Oscillator has traversed between jammed (98 to 107) and oversold (35 to 44). Price has made higher highs and higher lows.
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Some background data
No other oscillator even comes close to this indication of strength and the Oscillator works just as well in jammed down trends, -1 to 8, and overbought, 62 to 71). Further note the trend indication for larger timeframe traders is to enter multi-week long positions or calls each time the indicator reaches the oversold zone (35 to 44) and exit at the jammed area (98 to 107). NET traders drop down to the 30" charts and confirm exact entry and exits each time.
Referring back to the daily chart the market reaches a marginal high but only succeeded in getting overbought (89) not jammed. Also note the 3 successive higher price highs and now 3 successive lower highs in the Oscillator. One of my earlier books “Option Magic” calls this triple divergence. I write when we get Triple "D" on these larger time frames "back up the armored car, shovel all the money in and make a deposit in your favorite bank".
In my original book "Stan Moore’s Trading Methodology”. I note that all price/oscillator divergences could be traded. However, my new book "The Definitive Trading Bible" defines five different divergences, one of which should never be faded (up or down) and another divergence type that actually leads price. Now I can actually say all four of NET's Primary Indicators lead price and do not lag like most other indicators. Who else can say this - no one that I’m aware of! |
Chart 3: 30" Minute Chart
On Thursday morning 11/12 we note that price opens in the "High Window" or a retest of Wednesday's high (within 3 points on the 30" chart). However, the Oscillator has only reached 71 indicating leading divergence or just “leading D". Leading D has an 85% probability of trade success on the 30 minute chart.
Chart 4: 5" Minute Chart
At this point, an anticipated short trade has been set-up and confirmed by the monthly, daily and 30-minute charts. While the market opens lower it does rally into our anticipated sell window. The Advance/Decline is only 3/2 positive which does not support any move to higher highs. At about 10:00 AM, the trade is triggered when the Oscillator goes overbought and price is in an 80% multi-day retracement range. NET traders can begin to scale-in with puts (or sell E-minis). The trade is exited when the Oscillator goes oversold at end of day along with a 40% multi-week Fib number. With this 20 S&P point drop, the puts go from $0.60 to $2.80.
Conclusion
Trading with multi-time frame analysis offers greater trade confidence, higher probabilities of success and creates set-up opportunities which can use ‘bet the ranch‘-sized trades.
If there are any questions please do not hesitate to email them to me with your phone number. I will get back shortly. As always students should feel free to call me.
General Market Commentary
This week is the 3rd Friday expiration week. The MaxPain tells us "They" want the market higher near 1100 given the huge open put positions. I'm thinking trading range unless someone has a desperate need to jam the shorts.
As always keep those cards and letter coming. I do read them all and appreciate your thoughts.
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