This post continues my introduction to TRADING IN THE CROSSHAIRS.
There is much more to TRADING IN THE CROSSHAIRS than patiently waiting for a crosshair to form. It is the beginning of the process for without a crosshair there is no trade. However, there are other factors that increase the probability of a successful crosshair trade. One such factor-and the one we will cover today- is the use of multiple time frames.
I have four time frames that I use when making a decision to trade: the WEEKLY “War Zone”, the DAILY “Terrain”, and two INTRADAY “Deployment” charts (89 and 144 minute). The war zone chart gives me a broad picture of what a stock is likely to do for the next several weeks to months; the terrain chart for the next several days to weeks, and the 89/144 deployment charts the next several hours to days. By “deployment” I mean the chart wherein a crosshair has formed. Obviously, the 89 and 144 minute charts are used much more frequently than the others to enter a trade due to the shorter time period but the DAILY and even the WEEKLY (though very rare) can also be used as deployment charts.
In order to get a better understanding of how I put all of these charts together to provide a high probability crosshairs trade let’s look at an example using the 144 minute as my DEPLOYMENT chart. Our stock is AMZN (Amazon) from 9/16/09.
In this example the crosshair has formed on the 144 “deployment” chart. I do not enter the trade here unless my trade finds further confirmation on the TERRAIN and WAR ZONE charts. On these charts I look for support and resistance areas in the form of TANKS, recent price highs/lows, trend lines, and unfilled gaps. If these areas do not allow for a multi dollar move then I choose not to enter the trade. If these areas provide further support for the trade then I feel even more confident in its probability of success. If the higher probability is not present then there is no reason for me to risk my money.
Now let’s look at the TERRAIN and WAR ZONE charts for AMZN:
The TERRAIN chart reveals that the CROSSHAIR on the 144 DEPLOYMENT chart is formed from a strong move off the 50 and 21 TANKS as support. A high probability confirmation. Also, the TERRAIN chart reveals to me that the next area of potential resistance is $5 away, plenty of room for me to make a few dollars on an option and/or stock trade.
This area of resistance is also confirmed on the WAR ZONE chart as AMZN rises off a trend line support area.
CONCLUSION
So here is the way I think through this trade:
A CROSSHAIR on the 144 +
50/21 TANK support on the DAILY +
$5 move potential to next resistance +
Weekly support off trend line +
$5 move potential confirmed on the Weekly +
no earnings report the next few days
= HIGH PROBABILITY TRADE!
Trading should be a well planned thought process. For me, when several factors line up and make sense by confirming one another then I have a good, solid, potentially profitable trade. If all of the charts do not confirm one another then there is no trade!
There is one more set of factors I consider before entering the battlefield, which we will discuss in our next CROSSHAIRS INTRODUCTION post. Then we will discuss exiting the trade.
