The Bigger Picture
If you are a one time frame active trader, you are like the one trick Pony. As soon as another Pony comes along with two tricks, the one trick Pony can't compete. In trading, one time frame active traders simply can't compete with those who view and quantify the market's entire supply (resistance) and demand (support) picture.
Often I hear active traders talk about the time frames they look at when they trade. I hear many different things like "I trade off of a 2 minute chart", "I like the 466 tick chart", and so on. When I ask them what other time frames they look at, I can pretty much tell if they are profitable or not and here is how. For those who trade using JUST the small time frames, I have yet to see anyone make consistent profits doing that. For those who trade using the smaller time frames and also look at the larger time frames, that is a recipe for profits.
You may have the best buy setup you have ever seen on a 5 minute chart but if that is anywhere close to larger time frame resistance (supply), that buy setup is not likely to work. Conversely, you may have the "picture" of what appears to be a very high probability sell setup on the 15 minute chart but if that is anywhere near larger time frame support (demand), that trade is not likely to work.
There is another reason to focus on more than just a small time frame or two, trends. Larger time frame trends begin and end at larger time frame support (demand) and resistance (supply) levels. In the XLT Futures and Forex, we look at weekly and daily charts each week to identify larger time frame demand and supply level for three reasons:
To know where existing trends are likely to end and new ones begin
We want to be first in line, at the right time, when the risk/reward is ideal
To know what side of the market carries the greatest odds for an active trader To identify longer term swing trading positions
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Such as the Pound Dollar short from May of this year...
After hearing from soooo many people about how crazy the markets were this week with unprecedented news and unprecedented price movement, I thought I would share with you how we look at things in the Extended Learning Track (XLT) - Futures Trading and Forex Trading programs as they pertain to today's topic.
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We don't take news into account when trading the global markets, we focus on price and price alone as that tells us the real time demand and supply equation. In other words: Any and all influences on price are reflected in price. Opportunity exists when this simple and straight forward equation is out of balance.
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By focusing on the reality of what is happening in a market, we are able to profit from those who don't. In other words, when you focus on news and find yourself chasing trades on a 5 minute chart and losing money, understand that you are simply depositing your account into someone else's.
WHEN PRICE REACHES LARGER TIME FRAME DEMAND, IT IS LIKELY TO MOVE HIGHER…
Over the past week, some of the biggest and most popular markets around the world reached larger time frame demand levels. The strong bounce from these levels should be no surprise.
Above, the Dow reached larger time frame demand and is enjoying a nice bounce higher. If you are unclear as to what a supply and demand "imbalance" looks like or how to trade it, please see prior articles from me or see me in the Extended Learning Track program.
Gold also reached a larger time frame demand level. We look at the larger time frames in XLT at least once per week, and you should also.
Crude oil reached a larger time frame demand level as well and has seen a very strong bounce from that level. By looking at this chart each week in XLT, we are able to know which side of the market we should be on for our active trades and also our swing and position trades.
From today's article, my hope is that you understand two things:
The importance of reviewing the larger time frames no matter how short term a trader you are. The importance of seeing price action for what it really is.
Closing thought: Was there plenty of big news this week and this month? Of course there was. If we as traders never heard any of it, would we have traded any different? Nope, not one bit…
Have a good day…
Sam Seiden – sseiden@tradingacademy.com
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Sam brings over 15 years experience of equities, forex, options, and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.