I got an email yesterday from a hotcopperite, talking about lower and higher timespans and trading within them.
Happened at a good time, as the last couple of days of action have been grouse for a long trade setup, using Daily, Hourly and Ten minute in tandem to go for a low risk/high probability intraday long. I've put it all together on the blog... post copied below.
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A look at the daily and a drill down into the intraday timespans for the IGMarkets equivalent of the spi futures contract/xjo:
Into the Daily:
In a lot of respects, this post kinda highlights the worthwhileness of referring back to higher timespans when trading intraday active markets...
This first daily chart has a few things of note on it...
Firstly the thick red Horizontal line is the level of historical resistance/area of wave 2 on the weekly... as mentioned in the last post, a close of price in this area on the weekly chart suggests that the move down from 2007-2008 is not a 5 wave down trend. Price has still not made it to this area, and first attempt near these levels failed.
The dotted black horizontal line just below the red one is the (approximate) 68.2 % fibonacci retracement level of the 2007-2008 decline.
alright... zoom in to the right hand side for current price action:
The biggy here, and the efficacy of the larger time span to support intraday trading... the reaction of price on this daily timespan to the very current 21 period moving average...
'Kay, looking at bar by bar here,the last five bars really don't tell me much ON THIS TIME SPAN... price dropped, then bounced, how the heck could one possibly trade on that without doing more than tossing a coin and being lucky in choosing direction?
This is where the lower timespans come in and seem to whisper pre-emptive stuff....
So in my view the best way to play something like this is:
Note that Price is approaching a "known" resistance, in this case the dynamic level on price of the 21 period moving average. Zap down to a lower timespan and analyse what's going on there...
Hourly
Hindsight is a wonderful thing hey?
the equivalent level of the Daily 21 period moving average is marked by the thick blue horizontal line.
Checking as price comes down to this level, we can see the second dip and touch showed some strong divergence on the MACD moving averages, highlighted by the ellipses.
That second touch of this level on price, slightly lower than the firsthad a corresponding low on the MACD that was Markedly higher than the first touch.
At the same time, stochastics were deep in the oversold area.
a couple of good signals there which could enable a fairly low risk long entry at this level.
Popping down a bit further, this time to the ten minute to listen to the tale of the second decline into the 21ma Daily price level:
So here we are just looking at the second move towards the marked 21 period MA level... ten minute chart.
Histogram divergence marked by the blue segment on the MACD, coupled with MACD moving average divergence, and higher lows where lower lows are being made on price (highlighted by ellipses)
Perhaps a fluke, the one in the million chance that these "whisperings" (really the schizo voices in my head, lol!) are actually right... hmmmm this happens too often for me to think this is just a coincidence.
So to recap...
Higher timespan (Daily) price approaches a potential resistance level of the 21 period moving average.
Drill down to "next" lower timespan on the hourly and observe that the approach is suggesting that the resistance mght be strong.
Drill down to an even lower timespan, and the resistance level is hinting more than a little strongly that this could be a bounce and a potential low risk long entry.
(20min delay)