A Comment On Intraday Charts

Discussion in 'Trading' started by OldTrader, Aug 12, 2003.

  1. First, let me say that I am aware that most of you are using intraday charts, along with a variety of indicators. This post is not intended to tell you "not" to use your intraday charts, but to point out a few disadvantages.

    Next, let me also say that I spend alot of time analyzing charts on many of the indexes and numerous stocks. However, I spend my time looking at the daily charts, normally not the intraday charts.

    Let me explain why that is. The typical day these days might for instance be a 10-15 point day in the ES. But this range is not put in in a straightforward way. Rather, it's a combination of several points in one direction, a few the other direction, back and forth, up and down, until the days range is put in.

    If you're one who uses intraday charts and the day at hand is one which will ultimately be 10 points, and it takes you 2.5 points to recognize the trend, another 2.5 points recognizing that the trend is ending, that only leaves 5 points. And again, this is not going to be achieved in a straightline at that.

    So instead, what many do is set a target of a couple of points so that they can eliminate some of the problems set forth above. This then leaves them behind when the market makes a big move in one direction.

    I don't use intraday charts. Rather, I watch large numbers of indexes and stocks to get a feel for direction. Some of the things I watch include tick, trin, the A/D line, bonds, gold, and then various stocks and indexes. The idea here is to watch enough things to get a feel for direction.

    I'm also a big fan of watching the markets reaction to news events. This reaction can serve as a better indicator than most of the indicators out there if used properly.

    I also analyze the daily charts on all of the indexes and stocks that I follow. I watch the markets reaction as it nears one of those points, a pivot point so to speak.

    My belief is that the index futures, my primary trading vehicle, trade based on the combination of all the underlying stocks, but particularly those which comprise the larger percentages of the indexes. And therefore, these stocks and/or sector indexes give clues as to direction. I believe these clues are more reliable than any of the intraday charts that you may rely on.

    An understanding of how the major components of the indexes are trading enables the trader to trade based on the market. Watching an intraday chart creates a possible scenario where the trader is trading the chart rather than the market itself. This is where those false breakouts come from. The intraday chart may well create hesitation or fear at exactly the time when a trade is at hand if you're aware of where the important points in the daily chart lie, and if you're aware of how the underlying components are trading.

    Now, I'm not suggesting that you drop the use of intraday charts if you're currently using them. What I am suggesting is that beginning to monitor important sectors and components may aid your use of the intraday charts. And as your confidence builds, you may find it unnecessary to rely so heavily on the intraday charts.

  2. Kap


    Some interesting points, out of interest, does your experience come from European markets or US?
  3. US.

  4. Old Trader,

    I'm surprised to read your comments. I recall that you analyzed the intraday action in the S&P's a couple of times, and it was extremely educational.

    How do you go about entering and exiting trades? Is it a matter of watching the action of important stocks and indicators around levels you have already identified as potential pivots? Also, you must be using stops that would wipe out the typical ES trader's account. What is a typical holding period for you?

    I will say that in the old, pre-globex days, I made most of my money doing something pretty similar to this, although I did follow the intraday pretty closely. The slippage of trading several times a day would just kill you and also the daily range used to be 4-6 points, so the way to make big money was to catch a trend move and hang in there for a few days. Very exhilirating.
  5. You mean good news and the market goes down=more down move, that sort of thing?
  6. That's right.

  7. Actually I began watching intraday charts after I began posting here, and realized how widespread the use seemed to be. I mainly watched from the standpoint of trying to figure out if there was any special benefit, something I could capitalize on. I don't think there is.

    However, I think you misunderstand. I trade intraday. When a position works well I may carry overnight. But when I say I'm looking at daily charts, I'm looking at points that seem actionable to me. Further, I watch the indexes, sectors, and stocks all day, every day. All I'm saying is that I don't think there's a benefit to the intraday charts. In fact, often, as I said, I believe they can create a false impression.

    I have mentioned before I use a "fail-safe stop". Normally I use 10 points. This is the maximum amount I'm willing to lose on a trade...but again, I'm a tapewatcher, so when/if the tape changes in my estimation then I close the position.

    What I look for intraday is a clue or clues as to direction. This could come from virtually any source. I put alot of emphasis on sectors like the BKX or the SOX, key stocks, and indicators like tick, trin, and A/D. I also put alot of emphasis on reaction to news. I don't think though that the intraday chart benefits this process.

  8. Much depends on the point size of your stops... if you have large point stops, then there is great merit to what Oldtrader is saying... if your stops are, say, a mere 2pts, then the sole application of daily charts to trading decisions can't work in my view...
  9. You are right about small range, 34 pts on the YM so far today. Grrr....
  10. Yes, I did misunderstand you a bit. I know my trading basically turned the corner when I learned to use the indicators you mentioned.

    Do you trade the bonds or any other futures?
    #10     Aug 12, 2003