Monday, April 30, 2012

Monday evening

S&P futures traded in a tight range (5-6 points) today... closing within just a point or two of where they opened the day session. Oil and Gold continue to indicate that bulls are buying the dips... Oil is still flirting with 105 and Gold has been chopping higher towards 1700.

Monday afternoon


What is your primary timeframe ?

This is an important question to answer for your trading in general and for each individual trade in particular.  By primary timeframe, I mean the chart period which is used for entering trades.  For an investor, this should probably be a weekly chart.  For a swing trader, daily is probably appropriate.  For a daytrader, it might be 5min or shorter.  And since a lot of us operate in more than one of these modes, we have a mix of timeframes to deal with.

[ below is my interpretation of a couple of concepts I learned from Kurt Capra and other folks at Pristine.com.  Note that I am not always good about following these principles, but I think that they are good food for thought ]

Multiple timeframe analysis

Longer timeframes generally control over the shorter.  If the weekly is in a downtrend, then bounces on the daily might be good shorting opportunities.  If the 60min is in an uptrend, then pullbacks on the 15min might be buying opportunities.   etc.

Before entering a position, first determine which timeframe to use.  This is going to relate to how long you intend to hold the position.  Then look to a higher timeframe and decide whether it is working in your favor or against you.  If all lines up in your favor, you might also look to a lower timeframe to get a tighter entry point.  Some possible combinations :

Investor
Higher:  monthly
Primary: weekly
Lower:   daily

Swing
Higher:  weekly
Primary: daily
Lower:   60min

Day
Higher:  5min  15min  60min
Primary: 2min   5min  15min
Lower:   tick   2min   5min

I mostly daytrade index futures on a 2min chart, with guidance from the 5min.  If the 2min looks good but the 5min is not set up well, I will usually pass up the trade.  Sometimes I will look at a tick or range chart for a better entry, but my primary is the 2min.  

[ this is similar to the triple screen trading system detailed by Dr. Alexander Elder in his excellent book Trading for a Living ]

Mixing timeframes

After a trade is entered on your primary timeframe, it is usually better to not base your exit on a lower timeframe.  The reason for this is that a pattern which looks scary on a shorter timeframe is often just a pullback on the primary timeframe.  It is okay and often desirable to base your exit on a higher timeframe if you are looking to ride a longer trend.

This is not a hard and fast rule and there are cases where it makes sense to exit a trade based on something nasty happening.  But, in general, if you enter on the daily chart, set stops based on the daily chart.  Don’t get scared out by the 15min wiggles.  If you enter on the 5min, set stops based on the 5min and don’t let the tick chart scare you out.

Monday Morning Thread

Gator's Chart of the Day: RVBD
I opened a trade last week on the post earnings bounce.  It wasn't working and I dumped it but kept my eye on it.  Turns out I was not patient enough and bought it back as it started to show some life and I added as it continued to move up.

I'm looking for some gap fill. I don't expect it to head back to 25ish non-stop but I do like the 23 level to offer resistance and will likely be out of most or all of my calls before it hits that level.