(Click on Image to Enlarge)
Well today is the first post of some of the daily trades that we come across during the day. As you can see in the chart above, the trend was very much down today and I just love the down trades. It seems as if gravity helps you out....and sometimes we can take all the help we can get.
But while I was downloading the chart, I figured that most folks may be confused about some of what is going on...when looking at this chart. Soooo...I guess I should explain the madness behind the method.
This methodology uses at least two time frames. You would go to an even higher time frame to determine overall direction or bias in the market. Then drop down to the chart that you will actually trade.....which in this case is a 15 minute time frame. Then in order to reduce risk and fine tune the entry, we use something that is 1/5th of the size of the chart we are trading....so that means we use a 3 minute chart for timing.
BUT.....both charts must agree in order to take a trade. So lets walk through a few elements of the chart....or at least some of the broad brush strokes. This way in the future when you see the charts being posted, you will have a rough idea what we look for. First I use two indicators which are located at the bottom of the chart. I use a CCI (Commodity Channel Index) with a moving average that was added to it. That moving average is a 5 period simple moving average and it is used for a trigger. That's where those "B's" and "S's" come from. The other indicator is a modified ADX which is a directional indicator but its best attribute is that it displays the strength of the swing or trend.
In addition it also uses two lines that are called DMI's, a positive one and a negative one. We use those to change the color of the bars or candle's on the price chart. And then we use a few moving averages on the chart which are basically used to display dynamic support or resistance.
But one of the moving averages changes color and is either blue (Cyan) or reddish (Magenta), This is a very smooth moving average.....until the trend changes. And then it turns real fast.....and it changes color.
So the basic premise is this. Each indicator or moving average may be useful at some point.....but then again when used by themselves, can get you into trouble. However if we use them as a trigger....in conjunction with strength....and then filtering both time frames with the moving average and the bars that change color.....then we have something.
So you could study the chart above and get a gist of what we are looking for. And if you look at the last pullback all the way to the right and then look at the chart below.....you can see how they confirm each other.
(Click on the Image to Enlarge)
This chart is the 3 minute timing chart. And right around the NY market closing time, one of the trading room members asked me if I was watching this set up that was forming. I was.....but it was early and the 15 minute chart did not confirm the entry yet.
About 45 minutes later though, it triggered a sell signal on the 15 minute chart and that was confirmed on the 3 minute chart. So when you look at the chart you can see the entry and the bar that the exit took place.
The blue dashed lines are a projection of ratio's when compared to the risk we took on when we entered the market. And in this trade we got 4 times the risk for our reward. And to me......a 4:1 trade is golden....especially at the end of the day.
So did you understand all of that? No I didn't think so.....but its all good. The important thing to remember is that we use two time frames and they have to agree. The trigger for a Buy or a Sell is very fast.....so we have a heads up while we wait for the proper entry. And because the trigger is very fast.......we have a very good heads up for the exit. And even though we have a couple of indicators, by turning most of the information into a color......it makes it easier to interpret the information.
And lastly....but to me....more importantly.....we measure the trade using reward and risk ratio's to determine where we are in the trade. Just think of it as the lines on a football field. We know exactly where we are at all times.
So......this is our first post of some of the action in our trading room. But for the real deal, come on in and join us. We can explain it every step of the way in that venue. And each of our members use their own set ups and as they share them with you, you may find something that suits your personality.
Until next time....may God bless you and yours!
