The Profit Picture for Active Traders

Have you ever been to a Dr. to get an X-ray and they only take one picture? Of course not. They almost always take at least 3. Why? Because an x-ray of the same elbow, but taken from different angles, may look very different.

 The same applies 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. Meaning, astute traders and investors can and should look at multiple times frames for the same reasons the Dr. does, to accurately assess.

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 one small time frame, I have yet to see anyone make consistent profits. Those active traders who use the smaller time frames and also look at the larger time frames, they use 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 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 either.

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 XLT, we look at weekly and daily charts each week to identify larger time frame demand and supply levels for three reasons:

1. 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

2. To know where current price is on the larger time frame supply/demand curve so we know what side of the market carries the greatest odds for an active trader

3. To identify longer term opportunities

After hearing from so many people about how volatile some of the markets are lately, like oil, the dollar, and others, and with the equity index markets moving to new highs and bond prices collapsing, I thought I would share with you how we look at things in the XLT, our live online trading rooms as they pertain to today’s topic.

1. We don’t focus on news 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.

2. 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, and who wants to do that?

3. When a market is in an uptrend and is nearing a larger time frame supply level, that trend is about to end and a downtrend is likely right around the corner. Conversely, when a market is in a downtrend and nearing a larger time frame demand level, that downtrend is about to end and an uptrend is likely about to begin.

The strategy we use and teach those who want to learn to be active traders in any time frame is a simple rule based strategy that allows us to quantify real demand and supply in any market and time frame. This is very different than the conventional technical analysis and the faulty definitions of support and resistance.

From today’s article, 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 seeing price action for what it really is.

Hope this was helpful, have a good day.

Learn to Trade Now