An Objective Filter to Identify High Probability Trade Setups

The Multiple Time Frame (MTF) Momentum Strategy is the most powerful approach I've discovered in over 20 years to filter any market and any time frame for trade direction and execution. The MTF Momentum Strategy is a key factor to the trade plan that identifies high probability trade setups with minimal capital exposure.

Just about every trading book or course will emphasize that you always want to "trade with the trend." It's great advice. If you are always trading with the trend, you should mount up some very impressive gains.

Two big questions are usually not clearly answered: "How do you objectively identify trend direction?" and "Is the trend in the early or late stages?"

In almost every trading book and course I've seen over the past 20 or more years, the trading educators show many after-the-fact examples of how their trend indicator identified the trend direction long after the trend was established. It is easy to show a trend on any chart long after the trend is established. But how do we identify trend direction in the early stages? How do we identify when an established trend is in the later stages and in a position to make a trend reversal? Without some approach to help identify where within the trend the market likely is, typical trend analysis will usually be too early or too late to be useful over time.

It is easy to fill a book with after-the-fact examples of trends. Trendlines, moving averages, channels, momentum indicators, and many other techniques can show the trend on historic data. Unfortunately, none of these techniques can reliably alert you to the beginning stages of a new trend or whether a trend is in its final stages. They can only identify an established trend, usually long after the trend is established and the optimum entry is long over.

I know, we could say that a trendline break indicates a trend is complete and a reversal has been made. For every trendline break that follows a trend reversal, I can show you a trendline break fake-out that is followed by a continuation of the prior trend. Moving average crossovers are notorious for false trend reversal signals.

In fact, most methods of identifying a price trend are doomed to failure for practical trade strategies with as many false reversal signals as confirmed ones. This is a bold statement, but I believe it is true. It's time to stop the madness and and deal with the reality of trend position. I defy any trading educator to provide evidence that his so-called trend indicator consistently provides an accurate signal of trend position and trend reversal in a timely manner that a trader can take advantage of.

How can I make this statement? Let's defy the crowd and think for ourselves in a logical manner. What does a trendline, channel lines, moving average, or other indicator represent? Every moving average, channel, or indicator is based on historic price data. It can only represent what has happened or what is the current market position relative to the lookback period. It has little predictive value in and of itself. It will always be a lagging indicator of the trend position, never a leading indicator of what is likely to happen in the future.

Why are some of these techniques promoted over and over again as "trend indicators" with value for making practical trade decisions? Because it is easy to find lots of chart examples that seem to illustrate how valuable are each of the author's price trend indicators. However, let me make you this promise and this challenge. Name a trend indicator and for any market or any time frame that you are given an example of how it defines the trend, I will show you two examples where it quickly failed.

Every one of these techniques, whether a trendline, volatility channel, moving average crossover, or momentum indicator, can be a useful part of a comprehensive trading plan, but none of them alone will be of much use in and of itself to identify the probable trend direction for a future period. Over and over again, you will find that price reversals do not coincide with the trend indicator reversals. As I mentioned earlier, for every after-the-fact, well-chosen example given, I will quickly find at least two where the trend indicator did not work to identify a trend reversal in a timely manner.

However, there is a way to use some of these indicators to identify high probability trade setups.

In this chapter, you will learn how to use just about any momentum indicator as a trend indicator for trade direction in a unique but very logical way that you have probably not been taught before. We are not concerned with identifying the exact price-swing high or low of a trend. Rather, we are concerned with identifying trades in the direction of the trend, including near the early stages of the trend and avoiding the later stages. The Multiple Time Frame Momentum Strategy that you are about to learn is the most powerful strategy to filter any market for trade direction and trade execution setups. Not only do I believe the Multiple Time Frame Momentum Strategy is the best use of an indicator for trading strategies, I believe it is the only practical indicator strategy for real-world trading.

The Multiple Time Frame Momentum Strategy is not a stand-alone trade system (although it is probably much better than most "systems" that sell for thousands of dollars), but when it is included as part of a trade plan with the time, price, and pattern strategies you will also learn in this book, you will have a powerful trade plan that will not only identify high probability trade setups with minimal capital exposure, but warn you when a trend is near the end and a major trend reversal is likely.

I use the term capital exposure to describe what many trade educators call risk. Risk is the probability of an event happening. Capital exposure is the amount of money (capital) that may be lost if a market moves against you. I have much more to say about capital exposure later in the book.

Let's begin with the concepts of trend and momentum before we even look at a chart or the dual time frame momentum strategy rules.


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