Lessons from the Pros

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What Kind of Pony are You?

If you are a one time frame 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 markets entire supply and demand 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 assuming you do it right.

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 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 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 demand and supply levels. In the Extended Learning Track (XLT), we look at weekly and daily charts each week to identify larger time frame demand and supply levels for four reasons:

1)      To know where existing trends are likely to end and new ones begin

a. We want to be first in line, at the right time, when the risk/reward is ideal

2)      To know what side of the market carries the greatest odds for an active trader

3)      To identify and enter key longer term swing trading positions, before everyone else does

4)      Most important: To know where price is in relation to the larger time frame Supply / Demand curve

Point number three above has four key words in it that you must understand: “before everyone else does.” Let’s take a look at a trading opportunity recently identified in the Mastermind Community that used the combination of a large time frame opportunity and small time frame execution to limit risk and maximize reward. August 2nd on the Mastermind Community supply / demand grid, I identified a demand level (buying opportunity) for our students in the NASDAQ Futures at the 2600 level.

The Opportunity: Let’s look at the daily chart of the NASDAQ on the right. The black horizontal line represents the recent highs in the NASDAQ prior to the big rally. Those first two highs are levels the trading world focused on quite a bit. In newsletters, on TV, in trading rooms, I heard more and more that the NASDAQ was likely to breakout above those highs, setting the stage for a big rally. The more it became clear to me that everyone was focused on buying a breakout above those highs (the horizontal line), the more I focused on finding a low risk, high reward, and high probability entry to make sure we (OTA traders) could buy into this market well before everyone else did. The circle on that daily chart represents the decline in price on the other chart, right into the demand zone I put on the supply demand grid for that day. Buying at our demand level of 2600 on the small time frame offered a very low risk entry to buy and a key opportunity to buy into the market well before the group of retail traders and investors did on the breakout, which happened the day after our entry.

The key to making this happen was properly combining larger time frame smaller time frame supply and demand analysis to accomplish these two important goals, buying before everyone else did and buying with a very low risk entry.

From today’s piece, my hope is that you understand two things:

1)      The importance of reviewing the larger time frames no matter how short term a trader you are.

2)      The importance of predicting the next big market move before it happens and entering the market for that move in very low risk fashion.

Hope this was helpful, have a good day.

Sam Seiden


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.