Multiple Time Frame Price Action Indicator - Secret to High Profits & High Probability Trade Setups

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Published: 01st December 2010
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The Multiple Time Frame Price Action Indicator is the key to making high probability trades. High probability trading is when you stack the odds in your favor and give each trade the best chance of being profitable by using a low stop loss risk and a high reward potential. We accomplish this by using price action across 8 time frames: 5, 15, 20, 30, 60, 120, 240 and daily. When the majority of these 8 different times are all headed in the same direction the odds are stacked in your favor for a strong and profitable trade.

Essential to high probability trading is making a low risk entry compared to the high profit potential. Using a low risk to high reward ratio focus will dramatically improve profits. I recommend targeting a risk reward ratio of 1:3 or even higher. This 1:3 ratio means with just 25 percent winning trades, not counting commissions and slippage, you are at break even. With 40 percent winning trades or higher, you will be generating some very significant profits.

Here is how the MTF Price Action Indicator can significantly reduce your risk. For example, we will use the eMini Russell futures contract with $150,000 in the trading account. Using 1% of that account balance for your stop loss risk per trade means we are risking $1,500 on each trade. To calculate the number of contracts divide the $1,500 risk amount by 2 times the average daily bar range (the measurement of volatility), and this tells us we can trade 1 contract on the daily chart.

Now compare the example above against this second example which is a low stop loss risk entry using a 5 minute chart with the MTF Price Action Indicator to stack the higher time frame bias in your favor.

With just $15,000 in the trading account (1/10th of the capital needs in the first example) and using 1% of that account balance for your stop loss risk per trade means we are risking $150 on each trade (1/10th of the risk exposed in the first example). To calculate the number of contracts divide the $150 risk amount by 2 times the average 5 minute bar range (the measurement of volatility), and this tells us we can trade 1 contract on the 5 minute chart.

The key to using 10 times less capital and risk is using the 5 minute chart to refine your trade entries on a smaller time chart but still making your trade using the 7 higher time frame price action lines to make a higher time frame trade. This amazing difference allows the trader to risk 1/10th the money and still benefit from the higher time frame sized trade profits. That is precisely what high probability - low stop loss risk trading can do for you.

The Multiple Time Frame Price Action Indicator is critical to executing high probability - low risk trades. Remember, the key is trading on the 5 minute chart to reduce the risk to 1/10th of risk of trading on a daily chart, but you are actually trading the 7 higher time frame price action movements to generate large profits from trading the higher time frames.

To summarize high probability - low risk trading:


Using the Multiple Time Frame Price Action Indicator, which shows the price action across 8 different time frames, greatly improves the odds in your favor over trading on a single time chart.
Using a low risk - high reward ratio focus of 1:3 or higher keeps traders focused on making low stop loss risk trades while targeting higher time frame sized profits.
Using this approach, traders can accomplish a trade entry with 1/10th the account balance and 1/10th the risk per trade.

Welcome to the exciting possibilities created from using High Probability - Low Stop Loss Risk trading. Mastering this trade entry approach will result in very small stop loss exits in comparison to taking very large trading profits exits.

Mark David Johnson is a full time TradeStation programmer, trader, and trading coach for http://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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