How I Use A One-Minute Chart


Yesterday was the seventh down day with a close in the bottom of the range,

but it was an excellent trading day for
daytraders. NYSE volume was the lightest of the last four days at 1.44 billion,
the volume ratio was just 11, and breadth -1817 for a three-day moving average
of -949 and a 10-day moving average of -550, both of which are certainly
short-term oversold.

The Iraq/United Nations
debacle took up the entire day which kept the SPX in a 7 point range from noon
through the close. That becomes your closing range in today’s trading plan. The
SPX
(
$SPX.X |
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and Dow
(
$INDU |
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both declined about 1.7%, while the
Nasdaq
(
$COMPQ |
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and NDX
(
$NDX.X |
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did slightly better at -1.3% and
-1.0%.

Going into yesterday, you
were aware of your levels, so it was no surprise when you got an excellent Trap
Door on the SPX and Dow with the signal bar being the 9:40 a.m. ET narrow-range
doji bar. Entry was above the high of that bar for the SPX, which was 853.29.
The trade carried over 10 points to 863.95, which was right at the 60-period EMA
on your five-minute chart, which is equivalent to the 20 EMA on your 15-minute
chart. That was a reversal bar and the end of the first trade.

The next opportunity was
a short trade in the direction of the recent downtrend. Entry was trading below
the previous day’s low of 859.71, which is a basic continuation breakout trade.
The Trap Door is, of course, a reversal strategy. This breakout traded down to
the intraday low of 844.25, giving you a narrow-range signal bar with both the
open and close in the top of the range. This third opportunity was above the
high of that bar, 845.39. It only carried back up to a double top at 851.80
before another run down to 844.29, followed by a third trip up to 851.78.

That 852 – 850 zone had a
confluence of five numbers and with a monthly S1 pivot number at 854. The VIX
was consistent with past patterns, as the major thrust day was followed by a
higher high. The VIX hit an intraday high of 40.89, closing at 39.77. The
closing range is 38.90 – 39.82, so that becomes an early alert today, especially
for any reflex rally. Below 38.90 puts it below the 8-, 20- and 60-period EMAs
on your five-minute chart. That is just a reminder to watch the VIX just as you
do stocks, futures and proxies.

Today is the State of the
Union, with obvious significance, but probably the kind of day where I will do a
9:30 – 11:00 a.m. shot, get a haircut and lunch, then do a 2:00 – 4:00 p.m.
shot, seeing that the major indices could go rangebound again like yesterday
from 12:00 – 4:00 p.m., so there’s no interest in scalping. We need that fear or
greed to make it a big day.

One suggestion that might
help your awareness levels when daytrading is how I use a one-minute chart. I
set up the one-minute chart as a line chart, not a bar or candle. Next, I put
the short-, intermediate- and longer-term moving averages on it, and you can do
that with moving averages of your preference. You then draw a horizontal line
across the chart for each number that you feel is in play. Yesterday it was
854.08, 851.62, 851.70, 850.22, 850, and then 845.40, which is the weekly pivot
S1 number. You can also draw your previous day’s high and low number lines. If
you look at yesterday’s chart, you can see that the 852 – 850 zone controlled
the price action from 12:00 – 4:00 p.m. This becomes your primary intraday
resistance for today’s action. Any vendor usually has a horizontal line drawing
tool. You should also have these levels outlined in your trading plan. But I
find by also doing it on the one-minute chart, it helps my reflexes in reacting
to any setups at resistance or support.

If we have a reflex rally
throughout this week, there’s a high probability of a strong selloff in the
first few days of February. If the major indices continue down this week, then I
look for a sharp reflex rally starting from the same time period.

Have a good trading day.

Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Monday’s NYSE TICKS