|
The key to trading on a short term time frame is always
keeping the larger time frame trend in mind. Looking
at the larger time frame (Fig. 1, 2, 3), the 90 minute
charts for the DIA, QQQ & SPY we notice that
all 3 had traded down into a support zone.
From
the pivot highs of all 3 indexes , the SPY &
QQQ retraced back down to just above the GAP zone &
into thier 20 period exponential moving averages and
the DIA traded into its 20 period exponential moving
average & also a lower trendline of its bullflag
for the 90 minute chart.
Looking
at the short term time frame, the 5 minute charts (Fig.
4, 5, 6) for the same 3 stocks, QQQ DIA & SPY where
in a downtrend for most of the day, allowing short term
scalping opportunities to the downside on every retracement
to the 20 period exponential moving average. The 20
period exponential moving average is used as a short
term support and resistance in a trending market.
Notice
how on both the larger time frame charts above used
the 20 ema as support where as the 5 min charts below
used it as resistance. Understanding the use of multiple
time frames allows a trader to see both the both the
short term & long term term trends & how support
& resistance become factors for key turning points.
Price support/resistance are the result of pivot
highs & lows, GAP open & Gap close are also
considerd price support & as stated above,
the 20 ema is considered moving average support/resistance.
When
watching the 3 indexes ( DIA, QQQ
& SPY) , one key to finding turning points
is to watch for divergence's, this allows for entries
on a short term time frame & leads to powerful
moves using larger time frame supports. Risk is
kept to a minimum because the entries are based on a
short term time frame. Below you could see the same
3 indexes ( DIA QQQ & SPY) , BUT notice how the
DIA & SPY tested to NEW lows & the QQQ put in
a higher low on the final push down into support on
the 90 min. charts giving a buy divergnce on the
5 minute chart.
As
you could see above, all 3 indexes had been in a downtrend
on the 5 minute charts & confirmation of the buy
divergence came at a break above the blue trendline.
When watching for turning points in the markets, timing
is critical, watching the higher time frame supports
& resistance levels is key on higher time frames
as your entry is on the short term time frame, price
divergence on the indexes is one key factor to determining
entry signals.
This
is one way to time the markets with a low risk entry
is by using a protective stop loss at the last recent
pivot low of the short term time frame. Profit
exits are determined by the goal of the trader &
the time frame used, a 5 minute chart would give exits
at resistance's above from the intraday pivot highs
from the downtrend for scalping opportunities where
as a 90 minute chart would give exits at its pivot highs
on that time frame or in the case of these charts, a
retest of the last swing high of the 90 minute charts
above. Criteria for short entries is the reverse of
the above information.
|
New
Trading Ideas
