Early in my working life I became a shift manager. When a rush of work came in I would jump in and
start working right along with the other members of the team. My supervisor suggested that I not
jump in and do the work but look at the big picture and direct the flow of activity that was needed
to complete the task in an efficient manner.
When I relate this experience to trading it seem that by jumping in and day trading and not looking
at the larger time frames you are not seeing the big picture. By larger time frames I mean the daily,
weekly, and yes, the monthly charts. The larger time frames will pull the smaller time frames in the
direction of the larger trend. By looking at the big picture you can adjust your trading accordingly.
Swimming upstream is the reason you need to be aware of your long-term surroundings. It is really
hard or doesn’t work. You may see a trade develop on a small time frame and it goes against you
before you have a chance to get out without a loss. If you manage it correctly you will only suffer
minimal damages.
Have you ever been swimming in the ocean and all of a sudden you seem to be swimming nowhere?
I was playing in the ocean and was looking toward shore when I noticed the waste deep water was
now only knee deep and flowing out to sea I turn around just in time to see a 15 foot wave right
behind me. Before I could do anything I was picked up and dropped on my head where my feet once
were.
And that’s what it can be for YOU if you don't honor your trading rules and not swim upstream.
Just because the small current is going out to sea doesn’t mean that, that is the way the larger
current is going.
The monthly chart, for the trader, is the most dominant current influence. It's hard to turn a
battleship or an ocean liner...They turn slowly and after they do, they stay on that direction for
a good while, until some grand force has them turning again.
Take a look at any monthly chart. Big move up, then big move down, then up.. on and on.
The weekly chart has a lesser "macro" influence, of course, then the monthly, but a more immediate
influence for the day-trader. The daily chart has less of the macro influence, and more immediate
for the day-trader than the weekly, and so on for the 60-minute on down the timeframes.
If you're a day-trader... sure, you're going tick by tick in many cases… but when something happens
that "doesn't make sense"... think about which way the current is flowing.
To make sure the current is my friend, I've learned to take the majority of my trades WITH the
current... and it's made a very positive difference in my trading results. It will likely have
the same effect for you.
If I've noticed that the monthly, weekly, and daily chart currents are all pulling the same
direction, the wise thing to do in to not trade against all those forces.
The smart trader looks for the path of least resistance.
Hope this helps.