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Coach’s Corner- Relative Terms – Jan 25, 2020

No plan survives first contact with the enemy – this is a famous quote by Helmuth van Molkte – but it is something that we rarely discuss in trading. It is, however, one of the most important things we can learn as tacticians in the trading environment.

Last week, we took a look at the trade setups from a short time frame and a long time frame. Today we will breakdown the call and assess the strength of the estimation as well as proper and improper execution of the trade.

First, some clarification that came from questions from the trading room on Friday about the statement – ‘pullbacks are buy zones’ – this is a relative term- RELATIVE to the time frame discussed.

Let’s first clarify the commentary by looking at the ES_F daily chart that I put up on Thursday night – I have added some notes to clarify what I mean and what the RELATIVE TERM means. A discussion of daily and 4 hour charts that state that pullbacks are buy zones means that buy zones must be assessed according to this bigger time frame

THIS IS VERY IMPORTANT TO REMEMBER – and it is the reason many of us get confused in the middle of our execution phase in a chart

Let’s take a look at what the chart did on Friday

Note the chart moved according to the daily assessment – in one day

As a trader, my key success comes from the orientation of relative motion according to time frame. All trade execution is relative to time frame observations and estimations.

Now, consider the smaller time frames during the course of the morning as the traders began to look for the support area of the pullback.

So here’s the takeaway, the bigger time frames will always signal the most likely event – relative to the time frames themselves. A daily time frame will not predict a support or resistance within a 30 min time frame or a 5 min time frame.

BUT the 30min time frame will tell you what part of the cycle you will see relative to the bigger move in progress.

START from the biggest time frames and understand that days like Friday show us how quickly selling can shift if a real pullback to support engages.

Orient yourself in the big time frame and then, as an intraday trader, follow what the smaller time frame is telling you relative to motion.