Multiple Time Frame Price Action - Provides Powerful Reversal Trade Set-Ups

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Published: 07th May 2011
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The Multiple Time Frame Price Action Indicator is the key to powerful reversal trade set-ups. These trades have a high reward probability while using a low stop-loss risk. You may have heard you cannot pick market tops and bottoms. If you are trying to pick market tops and bottoms by looking at a one single time frame chart this would be true. But if you are using the Multiple Time Frame (MTF) Price Action Indicator you can find and make these powerful reversal trades.

The secret to knowing when these market tops and bottoms happen is shown in the interaction of the 8 different price action lines. Let's assume you are trading on a 5 minute chart. When the 5 minute price line is a large distance above the daily price line the odds are high that the upward price movement is over. It's a high probability that a powerful downward reversal trade will happen next.

The same thing is true when the 5 minute price line is a large distance below the daily price line. Now the odds are high that the downward price movement is over. It's a high probability that a powerful upward reversal trade will happen next.

The interaction between the 8 time frame price lines is the primary confirmation signal that validates these reversal patterns. When the upward price movement is over and you begin to see the 5 minute price line crossing below the 15 minute line, and then the 20 minute line, etc., that signals the breakdown of the upward trend. It's important to understand that it's the interplay of these different time lines that stacks the odds in your favor.

The secondary confirmation signal for these reversal trades comes from the Time Segmented Volume Indicator. Trading volume is like the gas pedal on a car. It takes gas to accelerate a car and it takes trading volume to accelerate price movement. When the 5 minute price line is a great distance above the daily price line, plus the time segmented volume shows a lack of buying volume necessary to push the upward price movement, this is when you have a high probability for a powerful downward reversal trade.

So what causes these reversal opportunities and why is the MTF reversal opportunity so powerful? Price movement in the market is caused by supply and demand. When the distance from the 5 minute price line down to the daily price line is extreme, and the volume shifts from buying volume to selling volume as sellers are making a reversion to the mean type trade, you'll get these great reversal opportunities. The root cause is the amount of buying volume vs. selling volume. Volume is the accelerator that drives price movement.

The MTF Price Action Indicator and Time Segmented Volume Indicator give traders the "edge" to know when these market tops and bottoms are high probability reversal trades. Add in some technical skill in reading chart patterns like double bottoms, head and shoulder patterns, etc. and you can trade these powerful reversal trade set-ups with confidence. Using this MTF approach is counter trend trading at its finest.



Mark David Johnson is a full time TradeStation programmer, trader, and trading coach with CustomizedTrading.com. He has personally developed over 60 strategies and over 200 indicators for the TradeStation platform. Mark's passion is to match his client's trading style with the best possible trading tools for them.



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