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August 18, 2008


Multiple Time Frame Momentum Strategy

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reversal—a hint of trade strategies you will soon learn. Regardless of the time frame you trade, a trade is not entered until a bar high or low is taken out following the smaller time frame momentum reversal. Daily bearish reversal 2 was made on the swing high bar followed by a sharp decline. Nice setup. Daily momentum reversals numbers 2, 3, 4, and 5 were all made within a bar or two of a swing high and followed by very tradable multiday declines. Now I don’t want you to think at this point that every Dual Time Frame Momentum Strategy setup will result in a profitable trade. Nothing could be further from the truth. A complete trading plan depends on more factors, including trade entry, stop-loss, exit strategy, multiple units, acceptable capital exposure per trade, and more. All I want you to learn at this point, until it becomes second nature to you, is that a trade setup is made following a smaller time frame momentum reversal in the direction of the larger time frame momentum. This is a completely objective, logical, and practical strategy for high probability, low capital exposure trade setups for any market and any time frame. Trade setups are not trade executions. Trade setups are simply conditions that must be met before a trade is considered. During this bond weekly period, bonds were essentially in a trading range, making nice swings up as well as down. The daily momentum made bullish reversals within a bar or two of each price low. However, because the higher time frame weekly momentum was bearish during this period, only short setups would be considered. Wouldn’t it have been nice to know in late August that bonds were going to make nice, clearly defined trading range swings for the next four months! We could make a ton of money with a trading range strategy. Wait a minute! We never know in advance when a trading range is going to begin or end, so we don’t have a trading range strategy. Only academic authors with questionable trading experience have a trading range strategy, and we’re not going to listen to their nonsense. The third weekly momentum trend was bullish from the week ending December 23 through the week ending February 18 (Figure 2.11). During this higher time frame weekly bullish momentum period, the smaller time frame daily momentum made two bullish reversals. Each was followed by a strong move up. Let’s note a couple of important things at this point. First, I haven’t changed the daily momentum settings for any of these examples to optimize the signals. You will learn how to choose the best settings for any indicator later in this chapter. Second, I also haven’t talked about stop-loss or exit strategies, both of which are crucial to a sound and consistently profitable trading plan. Those also come later in the book. Right now I’m just focusing on identifying trade entry setups based on the dual time frame momentum position. Let’s look at the next period, when the higher time frame weekly momentum reversed to bearish (Figure 2.12). During this period between the weeks ending February 18 and April 8, the smaller time frame daily momentum made two bearish reversals. The first daily momentum bearish reversal during this period was made about three weeks after the weekly momentum turned bearish. The market immediately made a minor corrective rally after the short setup. Any short trade strategy would have been a

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(wiley trading) robert c miner high probability trading strategies entry to exit tactics for the for  

(wiley trading) robert c miner high probability trading strategies entry to exit tactics for the for  

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