How I trade using multiple timeframes

As we come towards the end of the summer doldrums end of August to Mid September, traders must be extremely careful not to overtrade. Pacing is of utmost importance in this market. The first 30 minutes of the market day usually has the highest playable volume and then it’s pretty much all downhill after that. The last hour tends to get a pick up in volume. The best filtered set ups are Perfect Storms in which three or more time frames are forming converging pups or mini pups at the same time.

Mini pups are when the lead %d stochastics stalls on the rise as the laggard %dslow stochastics continues to rise to form a wedge like breakout and vice versa on mini inverse pups.

This was the case when we played OIH short in the last hour on 8/28/06. Markets were relatively flat but the OIH was forming a nice consolidation breakdown on the 3/8/13 minute charts. The ‘ace’ up the sleeve was the 60 min charts which showed a 60 min 5 period ma breakdown at 136.67 sealing the resistance there. The stochastics showed a mini inverse pup. This was the KEY underlying trend. From there, the 3/8/13 minute stochastics all slipped down setting up a nice 5 lane downmove. The 3/8 min stochastics formed dual mini inverse pups. Therefore the 3/8 coupled with the 60 minute mini inverse pups set up the perfect storm ala three converging time frame mini inverse pups. This allowed us to step in on the OIH short at 3:25pm at 136.60 with a trail stop at 136.80 just above the 136.67 resistance set by the 60 min 5 period ma. OIH took a hard drop a few minutes later to LOCK the 136.10 overshoots, out + .50 on its way down to the 135.90 coil supports. This was a perfect storm setup in a very flat light volume market otherwise.

Once again, pace yourself in this light market until volume returns mid September. If you do play this market stick to the first 30-45minutes and then last hour with TIGHT filters. Good Trading!

Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220, ext. 1.