Home > Apprentice Trader Journals, Lessons from the trading floor, Trade Replays > Trading in the Direction of the Higher Timeframes

Trading in the Direction of the Higher Timeframes

Recently with some of the breaking news that has hit the market(Goldman Sachs) the volatility in the market has increased.  The important thing to realize is the market will still trade in the direction of the higher timeframes.  The higher timeframes indicates what the bigger players in the market are doing.  Are they accumulating stock or exiting positions.  News that hits the market will act as a catalyst but will not change the overall trend of the market.  When you are trading a certain stock you need to get your ideas off of the higher timeframes and look for confirmation on the lower timeframes, then enter the trade. 

When I talk about higher timeframes I usually am talking about the 65 min chart and the daily chart.  If both timeframes line up I will be more aggressive with share size.  If they don’t line up I will scale back share size and expectations.  Two ideas I had going into today, long and short, show how trading in the direction of the higher timeframes is the easier money in this market. 

The first idea I had coming into today was in Las Vegas Sands(LVS).  I liked this stock to the long side because it has been one of the strongest stocks in the market.  The make or break level in this stock was the previous breakout at 22.50 which should now act as support.  If LVS gets below this level, the upside momentum could be done, and with my style of trading is a do nothing.  Right on the open LVS tested the previous days low of 22.35.  In this bull market buying a stock, that was weak the previous day, at the previous days low has been one of my favorite risk/reward scenarios.  I bought LVS when it got above the 22.50 level and held with an initial profit target of 23.50, because we couldn’t get above this level on Friday morning.  I was in and out of LVS as it was trading around the 23 area and sold in the 23.30 area.  I sold half into momentum and the other half when it pulled back after failing 23.50. 

Around this time the market started to lose some of its upside momentum.  I had a conversation with Pete this morning and he said he was looking exclusively at the financials in the morning.  One of the things that he said that stayed in my head all morning was that he wanted to wait for the first 30-45 min to settle in before he got aggressive.  I had Morgan Stanley(MS) on my radar to the short side, as it had been one of the weaker financials and if they all started to sell-off this was the one at the top of my list.  The first level I was looking at was the Friday afternoon high of 29.70.  As the market was losing some momentum MS happened to be forming a swing high around this level.  The plan was to get in below 29.60 which in my eyes confirmed a downmove.  The inital profit target was the 29 area because of the natural support that usually happens around whole numbers.  Now shorts in this market have been hard money but you have to take this trade.  Since the probability on this trade is lower it just means lower share size.  I traded around a core position as we paused around the 29.20 area and exited the entire position when we broke the figure and traded back up. 

Best of luck with your trading and have a great night. 

Kyle

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