When trading any market using pure technicals, I have found that the larger time frames always trump the smaller ones. The big fish always seem to be around a support or resistance line using monthly, weekly or daily charts. This is a “MUST KNOW” for day and swing traders to help you decide when to take profits.
For instance, you may be trading a ten minute chart and everything is rocketing your way perfectly. You are enjoying the ride and seeing your profits climb. Then suddenly, BAM! The market reverses and starts coming back down on your head, taking your profits quickly from you. Many times we are forced into reactionary “knee jerk” decision of exiting before all profits are gone. Why? Because we didn’t see the larger picture players who were reversing the market on a larger time frame, bigger than the one that we’re trading.
My system of trading targets the very beginning of a new move. Therefore I’m always looking for the end of the last move. This is where I exit if at all possible. Many times, I exit and then the market reverses and slams down on everyone else because they don’t know what I know or trade the way my system says to trade. I get a good chunk of the move much of the time. Sometimes I’m wrong and it keeps going. But I will never succumb to the “let r ride” thinking that is deadly to a technical system trader.
There are many ways to consider what I am saying for your trading style. The easiest way is to learn and understand support and resistance lines. If you don’t know a lot about those lines, simply pull Fibonacci lines and focus on the 38.2%, 50%, and the 61.8% lines on any given leg. If you are trading a certain time frame, find two larger time frames and set them in viewing distance. If you are trading the daily chart, pull a weekly and monthly chart and draw the Fibonacci lines associated with the current leg/move that’s taking place.
There are three photos on the right side of this writing. Picture #1 is SPX daily. I have pulled a resistance based Fibonacci line to show where resistance is located above. As the market travels downwards in a daily downtrend, there is a larger picture chart (photo #3) which is in an uptrend. That’s the monthly SPX chart. And the monthly just hit it’s first support line which is trying to hold and build from there.
I can’t see that support line from the daily chart. So while I may be enjoying a short trade while we go down, I have no idea what I’m about to run into from the bigger picture chart. The monthly 38.2% Fibonacci chart is about to hit me head on and attempt a big picture reversal. For me to NOT know this, could be deadly to my daily short trade.
Likewise, the photo #2 Weekly SPX chart is showing alot of support with a 61.8% Fibonacci line, and a rising 200% moving average. For me to NOT see these support zones on the bigger picture will eventually be deadly to my daily chart trading positions.
It’s important to not go too crazy with developing big picture support/resistance lines. You could have a line set up every 5 points of movement if you choose them all. But the bigger picture lines are very important to me – 38.2%, 50% and 61.8% Fibonacci. Also, any previous support/resistance that might find big fish players, I want to know about. These are the hot spots that I will be inclined to exit my trade and then look on smaller time frames for an ‘insta-shot” of counter trend buying or selling. I then would be very interested in a day/swing trading opportunity to get in on the very first trend change, based on those larger picture support/resistance lines.
I hope this all makes sense to you, and that you can develop a strategy that will always hunt for your big picture opposition. I was always told by my mentors to know three things: 1. Where is the opposition? 2. Where do they want to go? 3. Where are their stops? These three questions are critical to a good technical trading system.
Find your opposition. Run right up to their line. Then hand off your trade, take your profits, and exit the battle. You will be very happy knowing that the profits are safely in your account and you are out of the war.
