How To Set Up Intraday Charts Using Indicator Filters

  • November 11, 2002
  • Raghee Horner


What
“location, location, location” is to real estate…”price, price, price” is to
trading.

All
trading plans must start with price. A single price at which you will
engage the market. Each morning, you must have the following already marked on
your intraday chart before the 9:30 a.m. ET open:


  • the prior
    session’s close


  • any gaps going
    back — at least –  two trading sessions


  • any “lines and
    levels” of support and resistance

This is a
start. The style by which you’ll trade will be dictated by your time frame. If
you prefer a one-minute chart (or tick chart) then you’ll be more a scalper. If
you gravitate towards the three or five minute, I call that “momo” or breakout
trading. A ten minute/ten day chart is a requirement for all styles. Without
longer term gaps and support and resistance, you will be blind-sided! 
 



ESZ2 three minute


Each level on this ES contract chart was drawn in before 10:00 a.m. ET on
Nov. 1. If this alone does not clue a trader into the fact that multi-day
support and resistance levels are important,
I don’t
know what will. 

The most
straightforward use of the “lines and levels” combined with indicator filtering
would have a trader wait until one of the levels was in play, or close to being
so. Once prices were trading at this level, a trader could take a quick glance
at the MACD Histogram to see whether it is above the “0” line.

Let’s see how
things shaped up on the NQ contract on Friday.


 


NQZ2 three minute


In the case of both these charts, there were significant levels overhead,
namely the 900 century mark in the ES and the 1000 level on the NQ. These levels
take on a life of their own: Imagine a psychological number to the 10th
power…These levels are islands. They will have such strong public reactions
that — in my opinion — indicators seldom matter. 

There can be
little doubt that when a level like 1000 is broken to the upside (with a close
above) it creates its own momentum. When I trade these levels I like to see a
“re-test.”  Let the initial momentum break this hurdle then let a pullback
prove that this level will now hold. Let resistance become support — let support
become resistance.

What this style
of breakout trading will demand from the trader is patience…patience to wait for
the trading level with the filter indicators confirm the trade. Will there be
missed trades?  OF COURSE. The goal is not to increase trading
opportunities. The goal however is to increase the likelihood that a breakout
will follow-through.


Raghee Horner
is a private futures and stocks trader in Boca Raton, Fla. For 12 years she has
specialized in price action, charting, and trading psychology for intraday and
swing trading plays. Her focus is on trading the E-mini S&P 500, E-Mini Nasdaq
100 and the stocks she feels have particular synergy with those futures
contracts.