Wednesday, June 1, 2011

How I Trade The Trend

I day trade the grain futures, specifically corn; and I swing trade options on big liquid momo stocks such as AAPL. So what's my trading strategy? I'm a student of price action and market sentiment and work off of that. I like to keep it as simple as possible because complexity breeds confusion. When it comes to indicators there are only a select few I put my money behind and they are the TTM trend, TTM squeeze, and TTM wave indicators developed by John Carter, who I have learned a ton from over the last few years and highly recommend his book Mastering the Trade for anyone trying to make this a career. Anyway, how do I use these indicators to develop a trading strategy?

Simple as 1, 2, 3...

First, the TTM trend is just the color of the candles or bars you see in the charts. Either blue or red. You can see that once the color changes it tends to stay in a decent trend for awhile until things change. Each candle incorporates the close of the previous 6 periods in order to get an idea of what the actual TREND in the market is, which for me is valuable and much more important then the look or close of one candlestick.

Second, the TTM squeeze is the momentum bars with occasional red dots appearing on the midline. When they appear it tells you the stock or market is resting and getting ready for its next move so get ready!

Third, the TTM wave is the bottom indicator that shows two different wave's. A blue wave that shows the longer term momentum and a shorter term red/yellow wave. The blue wave is a filter for me to keep me on the right side of the market. For example, if the long term blue wave is completely positive then I am only looking for long setups and will buy the next time the shorter term yellow wave crosses back above 0.

All of these TTM indicators are available for free on ToS under studies.

Here is a real 60 minute chart example of a trade I took on AAPL about 2 weeks ago. AAPL had been underperforming a strong market that week so on Friday after it gapped up above 350 only to fade and then turn red on the day I was looking to go short.

1. Arrow one shows when AAPL broke 348 support the TTM trend changed to red looking at lower timeframe's like the 15 minute chart I scaled into some in-the-money 355 puts.

2. Arrow two shows the 60 minute squeeze forming on AAPL for several days saying that  move is coming. Once it breaks support at 348 and the TTM trend bars are red I can assume the squeeze will eventually fire off short.

3. Arrow three shows my last confirmation of the TTM wave red bars going negative and then the wave completely below 0. Indicating game on and I added to my 355 puts Friday before the close.

I stayed with the trade until AAPL gapped down on Tuesday morning and opened at 336. I could have waited for two blue bars in a row to show me the change in trend but I covered the AAPL at 336 that morning because 12 points in two trading days is a great move!

I do this on basically any timeframe with any stock or market. Rinse and repeat and follow the trend.

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