Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Trading the bigger picture: Scalper Edition

First, know that I'm a scalper. I just want somewhere between many ticks and a few points on each trade. With one contract, something like $50-100 per trade is fine. Then I throw more contracts at a winning strategy to hit my daily goals.

For a very long time, I struggled with looking at the bigger picture. Others were telling me I needed to look at 500 minute charts, 30 minute charts, whatever. Sure I could see huge trend over the course of days, but it was in the past and I couldn't find a way to apply what these charts were showing me. After all, I just need 1 point on my trade, not 10 or 20.

I spent all my energy and resources trying to develop the perfect chart. Just one chart, a small time frame (because I am a scalper). In the end, what happened could be explained very easily: Mixed signals/indicators didn't agree with each other.

That is because in order to try and account for every market condition (ie: pull backs, reversals, fake outs, chop, etc), there is no way to make all of this jive on one signal chart. So you end up with some really fast moving indicators, to try and get you in quick at the beginning of a move, and you have slow indicators that tell you if it was a fake out, etc.

It never worked for me.

Well, after a lot of time and lost money, I finally came around to understanding the advantages of looking at the bigger picture. I use three charts: small, medium, big. Let's take the ES as an example, since that is what most people here trade.

Big chart
Size: 10946 volume.
Purpose: Big picture trend.

The big chart shows me today's overall trend. The entire day fits on one screen. I don't care about yesterday or day before. Many people do, but not me. The big chart shows me major trend direction and strong S/R levels. You literally don't need a single indicator on it, although I use a couple just because I'm a visual person.

Medium chart
Size: 4181 volume.
Purpose: Identify reversals.

The medium chart is almost good enough to trade off of. It shows me a more up-close and personal look at the market -- more detail. This chart has just a few indicators on it that help me visualize when a reversal has formed or failed.

Small chart
Size: 2584 volume, or 3/4 range. (subjective)
Purpose: Timing your entry.

The small chart is what I use to decide the exact moment and price to enter a trade. That's it. I really don't use it to time an exit, because I'm a scalper.

Now lets put everything together.

1. Identify the big trend. You can use a variety of indicators to help you visualize this. I'm really liking EOT's Allas Average, but you can use a big MACD too. I only trade in the direction of trend, never counter-trend. Sure, you can miss a lot of trades with this. Who cares? Are you trading to trade, or are you trading to make money?

2. Wait for a failure of whatever the opposite of trend is. If big picture trend says long, then wait for a short to form and then fail. Look at the medium chart to determine the extent of the failure (tiny failure, big failure) and you'll be able to determine if this is a good time to start looking for entry.

3. Turn to your small entry chart. Look for the best time to get in. I never like to catch the tops or bottoms of trades, so this is usually on the first bar that closes in the right direction for me.

Simple as that. Trading became a lot easier once I started using this method over the "one chart does all" method. I think everyone should find what works for them, and use it. If you are still looking for that, then consider this approach and adapt it to your own style.

I've said many times before that one of the most important aspects of trading is having confidence. I believe that confidence is best established by coming up with your own strategy and rules instead of copying someone else. So study what works for others, and adapt it, don't just copy it.

If you've read this entire post and are sitting here saying that it isn't easy to see the big picture trend, then the only thing that is going to really help is experience. In the beginning, I couldn't "see" it either. I do have to admit, using the EOT Allas Avg makes things easier to see. Most indicators are just lagging price, but if you are a visual person (like me) then there are some that can provide something of benefit. Keep toying with them on historical charts until you can confidently say you have something that properly identifies big trend. Don't trade the big chart, unless you can stomach huge stops (I can't).

Big picture

Medium picture (1 of 2)
Medium picture (2 of 2)

Hope this helps!



Anonymous said...

Hiya Mike. I think you have a great set up. Looks like the A. Elder Philosophy. As far as trading with AA, it is a personal preference. You might want to look on the EOT Forums under "Your Custom Indicators". Richard has a cs code in there for Ninja that is a modified Shelly's Volume(SV VR4x1). I think you would like it on your 4181 chart.


cunparis said...

"You literally don't need a single indicator on it, although I use a couple just because I'm a visual person."

You mean to say:

"...because I'm addicted to indicators". :)

First, I'm really surprised at how similar our techniques are. I use 3 charts as well and use the lowest timeframe for timing entries. But there are some differences. I look for things to line up in 2 or more timeframes.

Regarding your indicators:

- for alla's average - this may not be the best example but do you really need this indicator to tell you that trend is moving up? Isn't it obvious?

I was trying to make an oscillator for the PC ratio. I ended up realizing that the PC Ratio told me everything I needed and there was no reason to make an indicator out of it.

- Williams %R - Can't you tell how strong the pullback is by looking at the bars? I'm not sure what the indicator is telling you that the bars do not.

Try this experiment: Look at your indicators and see if you can find the same information in the bars.

cunparis said...

I forgot to add. One thing I love to do is scale up. I start with timing chart and enter there. if criteria is met on my mid term chart (I call it my monitor chart) then I scale the trade up to Monitor chart and stop looking at timing. And then if I can scale up to trend that's where the big money comes in. Catching one breakout on the trend makes up for other smaller losses.

Anonymous said...

What is your typical position size with this method?

Big Mike said...

Three contracts, third being a runner which I don't exit until something clearly tells me too. I move it to my entry price after the first targets are hit.


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