The Roadmap
Today’s range just about overlapped Friday’s range — meaning there was little room to trade and lots of time to look at longer term charts. And last night I received an e-mail asking if these techniques really work on longer time frames. Let’s take a look at the chart I call my “Roadmap.”
For trading I use a three minute chart while keeping a 15 minute handy on a second monitor. But when I want to study the longer trend I use a 45 minute chart. As I’ve explained before, 45 minutes divides evenly into the 6 3/4 hours of trading for the Russell 2000 futures, giving nine equal bars for each day.
A Fibonacci measurement I pointed out yesterday was that very strong moves tend to reverse at a 423% external retracement of the first pullback. Notice the six day rally leading to point “A.” It’s a perfect hit of the 423% external retracement of the first pullback. Yesterday you saw it on a three minute chart — today on a chart fifteen times longer.
All of the other calculations work also, but first I want to point out something on this chart I don’t believe I’ve discussed in a commentary. A change of trend is often followed by a minor pullback before the move gains any strength. If you draw a trendline from a bottom reversal to this first minor pivot (bottom yellow trendline), it often seems to go off into space and have no relationship to price. By the time we reach point “B” most traders have forgotten that trendline.
You’ll find that point “B” is not a direct hit of a Fibonacci retracement from the earlier bottoms, but that trendline worked perfectly. That’s why I use multiple techniques in my trading. On the longer term charts I’m looking for potential reversal points — then I watch for setups on my trading chart.
Of course after a pivot such as point “B” I always tell you to draw a parallel trendline (in this case yellow.) Two days ago I showed how an upper trendline on a 3 minute chart pointed out the top of a move. On this chart that trendline is show in blue. And where the blue and yellow trendlines meet we have the completion of a large A-B-C with “C” equaling “A” for a Measured Move. Lots of reasons to anticipate the top that occurred on Friday morning.
Since that top on Friday we’ve moved sideways and are now bumping against the blue parallel. I don’t know which way we’ll go from here, but a combination of trendlines, Fibonacci, and a few chart patterns will help me find setups that continue to work. On any timeframe.
