Although we tend to focus our intraday showcase pages on trading the S&P 500, this is by no means the only market which these tools will work on. Below is a 10 minute Treasury Bonds chart to illustrate what happened over the last few days:
If you have been following these pages, you know that we recommend using many tools together as part of a comprehensive strategy. Since each indicator measures a different facet of market action, they each have something important to contribute to the final analysis. Trades are taken when a majority of the tools agree on timing and direction, and proper money management keeps you in the game long enough for your technical edge to start paying off.
There are three areas of interest, and they have been marked A,B, and C. As we were coming into point A, the tools began to work together to generate a buy signal. The Cycle Forecaster (cyan) turned up, indicating we were at a cycle low. This is always a good time to look for long trades. MA_Momentum (yellow) was giving us bullish divergence and had crossed over into positive territory without much happening to price itself. MA_TrailingStops (magenta) had gone bullish by popping below price, and there was an Exhaustion Bar buy signal at the low of the last bar of the previous day. If we count those up, we find we have four separate, non-correlated indicators telling us to buy. Shortly after all of this happened, Bonds blasted off and closed around 2 points ($2000) higher for the day. The hardest part about this trade was the money management. If we had followed too aggressively in the beginning with our stops (as MA_TrailingStops did) we would have been stopped out before the move and been sitting on the sidelines for the good stuff. It pays to give the market a little room in the beginning of a trade, but remember that capital preservation is more important than catching every move. There are always other trades - your job is to make sure you are around for them when they come.
Now let's take a look at B. As usual, the Cycle Forecaster gives us the first indication that the trend could change. It peaked out and started dropping sharply into Friday's opening. An Exhaustion Bar sell appeared at the last bar of the day, and MA_Momentum gave bearish divergence. MA_Fractal (red) had lost half of its value as prices were recording new highs, indicating that there was really no strength behind the rally anymore. MA_TrailingStops was the only indicator still positive, and that did not last long. Five out of five tools went bearish Friday morning, which meant go short. The market did top out, but the decline went sideways more than anything. MA_TrailingStops never got stopped out, and a small profit would probably have been made if this trade was held to the close.
Notice what MA_Fractal did starting around 10:00 that day. It went down to zero and stayed flat as a board the whole day. Let's see ADX give as clear a signal as that! The way to use this information, of course, is to look for a place to get out with a small profit and get on the sidelines. There's no reason to expose yourself to the stresses of daytrading when the market is not going to do anything.
So in two days there were two good trade setups, although whether or not a profit was made depended mostly on the stop placement tactics used during the first day. The important thing is how the tools supported each other to map out the signals. Learn how to listen to what the indicators are saying and the trades will start popping off the charts at you.
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