Putting It All Together: Understanding Set Ups And Filters

• August 12, 2002
• Raghee Horner

ESU2 five-minute: 
Friday’s trade setups

 

1. “AM”
   bottom pivot — conservative
   
   

2. “AM”
   bottom pivot — initially support and first sign of buyers
   
   

3. “AM”
   top pivot — first sign of sellers
   
   

4. 9:30
   opening candle high
   
   

5. 8/8/02 15:55 closing
   opening price, gap level

a. 8/8/02 15:55 closing
candle close price, gap level

   
6.   910 decade number level and morning session resistance

All lines — with the exception
of #6 — were drawn by 10:10 a.m.

Each price level is a decision
or trading level. I will seldom
draw new lines after 11:00 a.m. It is
these lines that I will use to handle the remainder of the day unless I need to
go out to the 10×10. I will use
psychological numbers (5’s and 10s), gaps, and multi-day support and resistance.

Each trade can only be taken
after prices have reached the trading level and the filter confirms the trade
direction. It is not unusual to find that
once prices have reached the trading level you can be in a position to buy or
short. When this happens, I will rely on
my MACD Histogram:  Above “0.00”
and I can only go long — below “0.00” and I can only go short.
A hard and fast rule? No,
but it is a guide that keeps me out of trouble. Will
I miss trades? Sure.
But I am looking for high-percentage trades, not simply a trading
opportunity. Most traders do not know the
difference. Make sure you are not one of
them!

There were no economic reports
on Friday, thus you see I did not mark the 60-minute high and low/10:30
reversal price. If there were, I
would most likely be flat just before the report and listening to the S&P
squawk. 

The only time I will enter the
market without my “AM” pivots marked will be if I am fading the gap on
the open.

Next we have the NQU2, which
can trade with more volatility than the ESU2. Why?
Mainly because I believe that the S&P 500 is the barometer for the
entire market. But I don’t want the NQ
to feel badly. I love trading it — it
has treated me well…

NQU2
five-minute: Friday’s trade setups

 

1. “AM” bottom pivot —
   conservative
   
   

2. “AM”
   bottom pivot — initially support and first sign of buyers
   
   

3. “AM” top pivot — first
   sign of sellers
   
   

4. 9:30 opening candle high
   
   

5. 8/8/02 15:55 closing
   opening price, gap level
   
   

6. 910 decade number level and
   morning session resistance
   
   

Can we set up stocks the
same way? Of
course! Here’s a one-minute chart
of QLogic
(
QLGC |
Quote |
Chart |
News |
PowerRating)…one of my favorite
trading stocks. I will use one-minute
with MACD Histogram to show how different time frames can be used.
For stocks, one- and three-minute charts seem to work well because of the
smaller price range we see as compared to the wide price range of the E-Minis.

 

The one-minute time frame (you
can use a three as well) allows me to get the “pivots” that will — many
times — not be apparent on a five-minute time frame. The
MACD Histogram is still the guide or filter. I will also use psychological
numbers on stocks as well! There usually
end up being whole numbers and .50 levels. You
can see the resistance at the 36.50 level on the QLGC chart.
If you were to look at QLGC with a three- or five-minute chart, you would
see that the “AM” pivots I’ve marked would simply look like support and
resistance level rather than the “V” type shift from buyers to sellers (or
from sellers to buyers) that I like to see.

Here’s an example of “AM”
pivots when they price range is channeling:

 

MSFT
one minute

MSFT gapped down and found
support at and just above 48. Sellers
took back control at 48.40. The AM pivots
basically marked the channel that MSFT traded in until 10:05.
Notice how the AM top pivot acted as resistance later again before 11:00
a.m. until this chart cuts off.  Not
shown is the second breakout above this level between 11:08 – 11:10 a.m.

Not all pivots are textbook
“V”s and it is important that you wait for them to form — see the shift
from buyers to sellers or vice versa — and don’t go hunting down a trade.
If you force it, it will most likely be too soon and a false breakout or
breakdown. This is about high-percentage
trades, not just trading opportunities!  Questions? 
ragheehorner@yahoo.com