eSignal Learning: Weekly Trading Article

Weekly Trading Education Article

Intermarket Day Trading with eSignal LRCs
(Part 9 of 19: Hot Money Tactics and LRC 11-Day Charts)
By Richard L. Muehlberg of DayTradingWithLinesInTheSky.com*
Posted: Jan 27, 2012

SUMMARY: Remember what you are trying to do as a lines trader. You are trying to shift your money to each day's "best, cleanest" (hottest) trade(s). You may be long or short one market or sector one day, then long or short another market or sector another day. To achieve this, you need good situational awareness: You need context and detail. In this, part 9, you will see the role an 11-day chart can play.

Lucky 11's

I closed part 8 of this 19-part series with these words: "Following multiple markets using multiple charts across multiple time periods is good and bad. Good: You improve your ability to see general relationships and specific opportunities; you improve your ability to shift your money to each day's "best, cleanest" (hottest) trade(s). Bad: You must cope with a steep learning curve as you balance the need for context (long-term charts) and detail (short-term charts). Context versus detail: You will struggle with that challenge every day you use the lines approach. I struggle with the challenge. When I get the balance wrong, I am blindsided; I trade badly. When I get the balance right, I see things clearly."

In part 7 of this 19-part series of articles, you saw the role a 1-day chart could play in achieving a balance between context and detail. In part 8, you saw the role a 2-day chart could play. In this, part 9, you will see the role an 11-day chart can play.

Think of context and detail as a ratio. A 1-day day chart is higher on detail than context. An 11-day chart is higher on context than detail. Each chart on a lines trading screen makes its contribution to your situational awareness.

On December 9, 2011, for example, bonds were a good short (Figure 1). The NASDAQ and S&P, inversely, were good longs (Figures 2 and 3). The day's 11-day charts helped you appreciate those trades.

Bonds broke off their 11-day bear sell-line. The NASDAQ and S&P rallied off their 11-day bull buy line.

Figure 1. 11-Day Perpetual Chart 30-year U.S. T-bonds (ZB #F) Captured on December 9, 2011

Figure 2. 11-Day Perpetual Chart NASDAQ 100 (NQ #F) Captured on December 9, 2011

Figure 3. 11-Day Perpetual Chart S&P 500 (ES #F) Captured on December 9, 2011

Euro FX (Figure 4) and crude oil (Figure 5) directly confirmed the December 9 rally in the NASDAQ and S&P.

Figure 4. 11-Day Perpetual Chart Euro FX (EUR/USD) (6E #F) Captured on December 9, 2011

Figure 5. 11-Day Chart Crude Oil (ETF) (USO) Captured on December 9, 2011

Eurodollars (Figure 6) and gold (Figure 7), by remaining neutral, effectively confirmed the December 9 rally in the NASDAQ and S&P.

Figure 6. 11-Day Perpetual Chart Eurodollars (GE #F) Captured on December 9, 2011

Figure 7. 11-Day Perpetual Chart Gold (YG #F) Captured on December 9, 2011

Several Lifetimes Later...

Five trading days can be several lifetimes to a day trader. The general situation changed significantly between December 9 and December 16. At the close of trading on December 16, this is how the 11-day charts appeared.

Bonds (Figure 8) shifted from an 11-day bear channel to a bull channel. Early on December 16, bonds rallied off their 11-day bull mean.

Figure 8. 11-Day Perpetual Chart 30-Year U.S. T-bonds (ZB #F) Captured on December 16, 2011

The NASDAQ (Figure 9) and S&P (Figure 10) shifted from an 11-day bull channel to a bear channel.

On December 16, the NASDAQ and S&P rallied sharply, then broke sharply. Resistance at their 11-day descending 50-period moving average acted as bull poison; the day's early rally died suddenly as supply overwhelmed bidders.

Figure 9. 11-Day Perpetual Chart NASDAQ 100 (NQ #F) Captured on December 16, 2011

Figure 10. 11-Day Perpetual Chart S&P 500 (ES #F) Captured on December 16, 2011

Eurodollars (Figure 11) shifted from an 11-day bull channel to a bear channel. With Eurodollars, as price falls, Eurodollar rates rise. That interest rate rise moved inversely with the NASDAQ and S&P; rising short-term interest rates depressed the equity indices.

Figure 11. 11-Day Perpetual Chart Eurodollars (GE #F) Captured on December 16, 2011

Euro FX (Figure 12) and crude oil (Figure 13) churned sharply. Each presented a quick long-side trade during the afternoon (the two confirmed each other), but you had to be fast.

Figure 12. 11-Day Perpetual Chart Euro FX (6E #F) Captured on December 16, 2011

Figure 13. 11-Day Perpetual Chart Crude Oil (USO) Captured on December 16, 2011

Gold (Figure 14) generally moved in synch with Euro FX and crude oil. Net: December 16 was complex. The 11-day charts highlighted good trades and warned against bad trades. The 11-day charts presented you with context and a measure of detail.

Would this kind of perspective going forward be helpful to you?

Figure 14. 11-Day Perpetual Chart Gold (YG #F) Captured on December 16, 2011

Multiple charts spanning multiple time periods add richness to your situational awareness. In part 10, you will see the role a multi-month chart can play.

*Reprinted (and modified) with permission from Richard L. Muehlberg (richardmue@yahoo.com), the author of 17 articles published in Futures magazine.

ARTICLES IN THIS 19-PART SERIES:

Intermarket Day Trading with eSignal LRCs

(Part 1 of 19: How Price Moves)

(Part 2 of 19: Spyder on a Mirror…The S&P 500 versus Bonds)

(Part 3 of 19: What "Poker Tells" Can Teach Traders)

(Part 4 of 19: What "Helmet Kill" Can Teach Traders)

(Part 5 of 19: Good Day Trading Is Good Trend Trading)

(Part 6 of 19: Fractal Charting and Multiple Levels of Observation)

(Part 7 of 19: Hot-Money Tactics and LRC 1-Day Charts)

(Part 8 of 19: Hot-Money Tactics and LRC 2-Day Charts)

(Part 9 of 19: Hot-Money Tactics and LRC 11-Day Charts)

(Part 10 of 19: Hot-Money Tactics and LRC 6-Month Charts)