Dual Time Frame Momentum Strategies

[swingtrader188]

You may be interested to learn the dual time frame momentum strategies, simplified Elliot wave analysis and Fibonacci ratio analysis and trade management strategy described in Robert Miner's High probability trading strategies.

I have been applying it to identify swing trade set-up in our stock market, and, day trade set-up in FOREX and CFDs for a few months now and very encourage with the result.

It obviously will not work all the time ( no system do) but with risk control and good money management, the net results are positive.

[Doom]

can explain more details?

[swingtrader188]

can explain more details?

Basically you wait for a pattern and price set-up and filter it with dual time frame momentum position.

For example, if the trend is bullish and you see a corrective pattern which has retraced to a Fibonacci support level on an hourly chart.
You would wait for your momentum indicator to become bullish on the hourly chart and a momentum bullish reversal on 15-min chart to have a buy set-up. Entry is on take-out of swing high or trailing 1 bar high on the 15-min chart.
I use slow stochastic (8,3,3) and MACD Histogram as my momentum indicators because I'm familiar with them but you can use any momentum indicators.

It is best if you get the details from Robert Miner's book High Probability trading strategies. You can download the ebook free. Just do a google search.

[swingtrader188]

can explain more details?

Basically you wait for a pattern and price set-up and filter it with dual time frame momentum position.

For example, if the trend is bullish and you see a corrective pattern which has retraced to a Fibonacci support level on an hourly chart.
You would wait for your momentum indicator to become bullish on the hourly chart and a momentum bullish reversal on 15-min chart to have a buy set-up. Entry is on take-out of swing high or trailing 1 bar high on the 15-min chart.
I use slow stochastic (8,3,3) and MACD Histogram as my momentum indicators because I'm familiar with them but you can use any momentum indicators.

It is best if you get the details from Robert Miner's book High Probability trading strategies. You can download the ebook free. Just do a google search.

I have posted my recent XAU/USD (Gold) trade in my blogspot as example to illustrate the method.

[swingtrader188]

I identify most of my FOREX trade set-up these days based on daily chart as my higher time frame chart and 3-hourly chart as my lower time frame chart. The trend on daily and 3-hourly charts are more stable and less prone to whipsaws. In addition I spend less time looking at real-time price data and the potential reward is much better. The concept is the same, i.e. trade in the direction of the daily momentum and execute trade on the 3-hourly chart. I posted a few examples of my recent FOREX swing trades to illustrate the concept.

[Doom]

sound interesting...

[swingtrader188]

Below are the checklists I use to identify a FOREX swing trade set-up.

1. What is the higher time frame trend?
- Decide on the higher time frame data (I usually use daily chart as my higher time frame chart to identify the trend direction, and, 3-hour and 30-min as my lower time frame charts to execute the trade).
- Check the slow stochastic in the higher time frame chart for momentum positions (bullish, bearish, oversold (OS) or overbought (OB)). Trade in the direction of the higher time frame momentum.

2. Do we have a correction pattern in the lower time frame chart?
- Check for ABC or Complex correction patterns.

3. Do we have an end of trend pattern in the lower time frame chart?
- Check for 5-wave trend pattern, W-bottom or M-Top reversal patterns.

4. Is the price in a position to complete the correction or the trend in the lower time frame chart?
- Carry out Fibonacci price ratio analysis to determine potential support and resistance.
- Carry out Fibonacci time ratio analysis to determine potential time target to complete the correction.
- Check the slow stochastic for OB/OS reading and momentum reversal.
- Check for Bollinger bands upper or lower lines tag/bounce.
- Check for candlestick reversal pattern.

5. Is the reward/risk ratio acceptable?
- Determine the entry price, initial protective stop and minimum price target.
- Compare the potential reward against the potential loss.

6. Action
Once a high probability trade set-up with acceptable reward/risk ratio is identified:
- Determine the position size to limit risk to 2% of the previous month end account balance
- Check the total exposure of all opened positions to ensure it is less than 6% of the previous month end account balance
- Enter at least 2 units per position on a trailing one bar or swing high/low breakout entry

[swingtrader188]

You can use The Explorer function in MetaStock to search for stocks that meet the Multiple time frame momentum criteria.

For Malaysian stocks my higher time frame is weekly and lower time frame is daily.

1. Weekly data scan - To look for weekly stochastic bullish or oversold (set the period to weekly):

a) When the week has ended (i.e. Friday), use this formula:

{Stochastic bullish and less than 80%}
(Stoch(13 ,3 ) > Mov(Stoch(13 ,3 ),3,S) AND Mov(Stoch(13 ,3 ),3,S) < 80) OR
{Stochastic oversold}
(Stoch(13 ,3 ) < 20 AND Mov(Stoch(13 ,3 ),3,S) < 20)

b) When the week is still not complete (i.e. not Friday yet), use this formula:

{Stoch Bullish and less than 80%}
(Ref(Stoch(13 ,3 ),-1) > Ref(Mov(Stoch(13 ,3 ),3,S),-1) AND Ref(Mov(Stoch(13 ,3 ),3,S),-1) < 80) OR
{Stoch oversold}
(Ref(Stoch(13 ,3 ),-1) < 20 AND Ref(Mov(Stoch(13 ,3 ),3,S),-1) < 20)

2. Daily data scan - To look for daily stochastic bullish reversal or oversold (set the period to daily):

{20-day average volume at least 3,000}
Mov(VOLUME , 20, S) >= 3000 AND
{Stochastic not oversold}
Mov(Stoch(13,3),3,S) < 80 AND

{Stochastic Bullish Reversal}
(Cross(Stoch(13 ,3 ),Mov(Stoch(13 ,3 ),3,S)) OR
{Stochastic oversold}
(Mov(Stoch(13,3),3,S) < 20 AND Stoch(13,3) < 20) )

Once you have the short list, screen the fundamental of the Company because you will have distressed stocks in the list and carry out pattern and Fibonacci ratio analysis for stocks with good fundamental. The idea is to buy stocks with good fundamental when they are available at discount and in position to turnaround.