Stock, Option and Futures Trading
NQ Scalper- Confirm with higher time frame
June 25, 2011
With everything we do we always want to confirm our entries to our higher time frame charts. This is why we use patterns on the minute charts then we break that direction down into our scalper charts. The scalper chart just like any chart is a tool meaning; all time frames are tools to look at the market in a different way. Time, Volume, Tick, Range and minutes are all ways to look at the market.
Some traders have a thought that using multiple time frames is almost like trading a different symbol but it is nothing like that. Just because different time frames might look different the price of the NQ is the price no matter what chart you are looking at and that is why we say time frames are tools just like a indicator.
In using multiple time frames we are avoiding the lower odd counter trend trades. You can see from the chart posted above that the smaller time frame (on the bottom) look as if the NQ was going to make a move to the downside. If you now look at the higher time frame (the top chart) you can see that the move down was only into the support and the higher time frame was actually setting up a buy signal that resulted in a 13 point move. We got a sell signal for +10 points on this trade.
We always say that the most important questions with trading are the 2nd or 3rd question NOT the 1st question.
1st Question- What direction is the NQ going? Kind of obvious
2nd Question- Where does that direction end? This question is much more valuable.
3rd Question- What are we looking for to say the move down is over and why? This would tell us to get back in long in the bigger trend direction.
You can see how both charts are important and hold value in different ways if used properly. We see it to often that traders try to use to small of time frames and in doing this they get tunnel vision on the market and miss the bigger moves. Also you will feel like you are chasing the market up and down and start to over trade with high emotions.
Could you just use the bigger chart? Yes, but in doing that the stops are bigger.
If I could only have one chart at a time I will always go with the bigger chart NEVER just the smaller chart. Knowing this I know I will always confirm the smaller chart with the bigger chart. Even though this example is on our scalper the same exact rules apply using a 60, 10 and 3 minute chart. The same questions and rules apply no matter what method or time frame.
A good rule is to have the higher time frame 3 to 5 times bigger than your trigger chart meaning; you do not want a one and a three minute. Both of those would fall into the smaller category.
60, 10 and 3 is a good.
30, 7, 2 is also good.
20, 5, 1 (We would not use a 1 minute chart). We would use a Tick or Range chart over the 1 minute chart.
Go back over your losing trades and see the entry level and then look at your higher time frame and see if your methods have a way to filter out the losing trades. If you go back and your higher time frame is not of any benefit stop trading and get something that can help you filter out the trades. The whole point of reading charts is to gain odds so if you do not have odds on your chart your chances of success are too low to risk real money.