In my last post I mentioned my rule of 5's when it comes to time frame convergence, my reasoning for setting a hard rule is to attempt to maintain a near mechanical trading system. In my trading I like to have hard rules that I follow without exception, this helps me avoid making mistakes and taking poor trades. I realize that not everyone can trade this way, but I find that by keeping hard rules it takes as much emotion out of the trade as possible. Too many traders get caught up in the small details and often miss out on the big picture because they are too worried about whether there analysis is correct.
My next example is a trade from Thursday on the e-Mini S&P 500. When I day trade this market I typically use a 3 minute chart, you can however use any time frame and apply the same "Rule of 5." Around 2:00PM ET we have a Stochastic selling trade being identified on the 3 minute chart, while this chart looks like a perfect trading opportunity lets look a few time frames higher and make sure this downtrend looks good.
Since I am trading on the 3, I multiply that by 5 and get 15. I now look at the 15 minute chart for my time frame convergence. Remember, on the 15 we are not looking for a trade or a turning point we are only looking at the condition of the trend. Two things on this chart stick out to me, first we have 9 consecutive red XTL bars, this represents a down trend. Next, I see a Wave 4 which most people would think, "The market should move into a Wave 5 up" but take a closer look, the PTI is less than 35 and our oscillator has violated our Wave 4 rules. The Wave 5 has a small chance of being successful and this market is likely headed down. You have perfect time frame convergence.
Remember, keep it simple. You are looking for trend confirmations only, don't try and micro analyze the higher time frame. Save that for the time frame where the trade has been identified.
Ron Wheeler
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