Momentum stocks rule this market, and that’s just fine by me.
But with fewer stocks making new highs, it begs the question….
Can we still profit when market volatility slows down?
Just make sure you know your timeframes.
As I told attendees in my webinar yesterday, my TPS setup works on everything from a 5-minute to a monthly chart.
All I do is adjust which ones I look at based on the market conditions.
Right now, that means going down to lower timeframes.
That might seem risky to folks who worry about day trading.
But let me explain how I compensate for these differences.
Once I lay them out, you can decide for yourself whether you want to go this route.
Imagine driving to a destination. You know the speed limit, can see all the cars around you…everything that’s observable is at your fingertips.
In your head, you have a map of several different routes to get where you want to go.
Being the prepared person you are, you pick out the shortest route ahead of time.
Makes sense that you would get there fastest that way right?
Well, what if it was rush hour? How about if there’s an accident on a side street?
Would that change how you look at things?
Looking at just one timeframe is like driving without knowing when you’re leaving and what’s going on around you.
That’s why traders look at multiple timeframes to gain perspective on their trades.
Timeframes relate to one another differently depending on how far apart they are.
Weekly timeframes matter to daily charts, but not so much the 5-minute chart.
In today’s market, I focus more on the 15-minute, 30-minute, hourly, and 78-minute charts for my LottoX trades.
That limits me to the daily chart and below.
Today’s markets chop around a lot, making it difficult to gain traction on swing trades lasting several weeks.
Instead of trying to force the issue, I look for stocks pulling back in strong uptrends that have the potential to at least get back to their recent highs if not break out.
Calibrating to smaller timeframes
LottoX members often ask me how I choose the right expiration.
In general, I want to go with an expiration that takes 2x-3x longer than I expect the trade will need to work.
For most 5-minute through 78-minute charts, that means picking expirations for that week or the following one, depending on which day it is.
When I initiate trades at the beginning of the week, I’ll typically go with that Friday’s expiration.
Once it gets past Wednesday, I will usually go for the following week’s expiration unless its the 15-minute chart or less.
Trades on smaller timeframes often mean smaller price movements.
So, I adjust how much I risk on each trade accordingly.
Let’s say I normally risk losing $100 on a stock that moves $5 over the course of a trade on the daily chart. That would mean I pick up 20 shares.
Take that same stock and break it down to the 15-minute chart, and it may only move $1. To risk the same $100, I would need 100 shares.
At first glance, it seems like you’re taking more risk.
However, by changing the stops to $1 instead of $5, you’re giving the trade less wiggle room.
That’s why I construct trades based on how much I want to risk and profit rather than thinking about how much the stock moves.
That being said, the stock needs to move enough to make the trade worthwhile. Especially with options, if the stock doesn’t have enough price action, the option prices won’t move.
Maintaining a consistent strategy
All of this assumes that your strategy can be scaled up and down to different timeframes.
If you have a strategy that only works on daily charts, it won’t be much use on the smaller timeframes.
However, many traders assume their strategy won’t work on smaller timeframes when all it takes is some minor adjustments.
When I first started with my TPS strategy, I kept strictly to the daily charts. Eventually, I dipped my toe into the shorter timeframes and testing the waters.
After journaling my trades and calibrating, I found that I could use the core elements of the setup on pretty much any timeframe (although I have not tried a tick chart).
You don’t have to start from scratch
A lot of traders assume they need to come up with a brand new way to trade the markets.
Nothing could be further from the truth.
My TPS strategy that I employ in LottoX may be unique, but it pulls together elements, some of which you’re already familiar with.
That’s why I encourage you to check out my webinar and see how I use it to profit from this market.
Click here to sign up for my upcoming webinar.