OK, for newer members, the longer timeframe 3C charts such as 15 min, 30 min, 60 min, etc. show the largest amount of underlying money flow when they post divergences, this money flow is smart money which we are trying to essentially emulate, you'll notice 99 times out of 100, the 3C signals will contradict market price and that is where our edge can be found.
"To make money, you have to see what the crowd missed" and technical traders rely on indicators that are all lagging as price data is lagging, 3C relies on forward forecasts based on probabilities and is close as I've seen to a leading indicator, thus we are seeing something no one else in the market is seeing as this is our proprietary indicator.
The shorter timeframes like 1 min through 5 min show for the most part, near term activity or expectations, although they can grow in to larger divergences as they migrate to longer term timeframes.
A 60 min chart pointing in one direction means that a signal on a 5 min chart has the highest probability of resolving toward the highest probability represented by the 60 min chart.
Lets assume we have a market moving down or starting to move sideways after moving down for a significant period (like the Russell 2000 since the July 1 highs) and we have a 60 min chart posting a positive divegrence, meaning 3C is rising in to lower or flat prices, this is a positive divegrence telling us that the lows in price are being bought by smart money.
Most traders assume large price moves on volume are evidence of smart money buying or selling, but after a decade of un-learning the dogma of technical analysis which I once taught and learning to trust my indicators through real experience, as hard as that was for me, I know that by the time price moves, smart money was in position long before that move occurred so retail ends up chasing prices at exactly the wrong time.
I've had an insider's look at a large Wall St. firm's research reports, I can't say who or how because I'd endanger my source's job, even though this was over 5 years ago.
I thought I had the Holy Grail of trading and I acted on the research reports and recommendations that were disseminated to the trading desks and guess what...
I LOST MY BUTT! I couldn't understand how this large Wall St. firm could have got it so wrong. I abandoned the research reports I use to spend hours scouring, trying to understand their lingo and went back to what I was doing.
Then about 6 to 8 months later as I finally got around to cleaning up my bachelor pad, I found the old research reports and decided for poops and giggles just to take a look at what happened since I lost my butt taking trades based on them and to my surprise... Nearly EVERYTHING they had said came to pass or was in the process.
What did I learn? I learned we all view the market from the tinted glasses of our own experience and for retail traders like us, who can easily enter a position and exit it on the same day, I never gave too much thought to how different that same process was for large institutional firms. I found they often had to do the opposite of what they wanted to do at first, to get to where they wanted to go, that's because we as retail traders, even some of you larger guys managing millions, it's still not anywhere near the level of these large firms which I compare to
Oil Tankers that take a mile just to come to a stop, whereas we, trading in 100 lots are like a jet ski. Often they'd have to knock a position down to buy it on the cheap with plenty of supply available, otherwise they'd just push price against their position and because they're so big and there's only a limited amount of liquidity per day and because the last thing they want to do is have another firm catch on to what they are doing (Warren Buffet and others have pulled a play that the SEC allows which lets them get away with not reporting certain positions on their quarterly 13-F if reporting it will disturb their effort to continue accumulating or selling the position) or even worse, a Parasitic HFT Iceberg hunters discover their order and front run it costing them tens of millions of dollars.
The bottom line is institutional money has to enter and exit positions in ways much different than what we understand and that was what I was missing in looking at the reports, the time component.
The point is, a longer term chart's signal suggests that this is the highest probability because it is the largest flow of funds so a positive divegrence on a 60 min chart with a negative divegrence on a shorter, smaller underlying flow 5 min chart likely means the 5 min chart is calling for a pullback, but the probabilities represented by the 60 min chart say that the pullback will resolve in higher prices,
thus making such a pullback a high probability entry at lower prices and lower risk.
That's the nuts and bolts of multiple timeframe analysis with any indicator. Keeping that in mind...
We are going to look at the 3C charts for Futures, here's a quick legend...
ES= S&P E-mini futures
NQ=NASDAQ 100 futures
TF=Russell 2000 Futures
ZB= 30 year Treasury Bond Futures
VX=VIX Futures (not the same as spot VIX which can't be traded).
TF 1 min showed a positive divegrence a bit ago and I suspected some higher prices in to the close, we're seeing a bit of that now.
However, the longer 5 min chart is where near term probabilities over the next day or so are and why I expect a near term pullback in the market, but especially the outperforming IWM/Russell 2000.
TF 5 min chart leading negative, a clear signal forecasting a near term pullback of some significance, perhaps this week's lows or thereabouts...
The ES 7 min chart also shows a near term pullback, although it has done more work in building a solid base so the IWM and SPY pulling back together early next week would not be surprising as most of the time the averages move together.
Today I believe the SPY and QQQ were higher to cause the most number of options to expire worthless so the writers, largely Wall St. can keep the premiums and the buyers have worthless contracts.
NQ 15 min chart, a higher probability, it doesn't negative the near term probability of a shorter term pullback, but suggests that the pullback is in fact a pullback and not a new decline.
I picked up some QQQ calls yesterday because I thought the Q's have done the most work on their base recently.
Even at 15 mins the TF chart is negative suggesting a strong pullback, but it also has more to pullback do to its outperformance this week.
NQ 30 min chart with higher probabilities is pointing to a base forming and sending the market higher, actually the base is formed, it just needs some more work, but not much.
ES 60 min with the positive divegrence starting Oct. 2nd as we have sen everywhere. Because of this strong chart, I opened a partial UPRO (3x long SPX) position, this is suggesting quite a move higher after a near term pullback that does some more base work, making it stronger to support a larger move.
TF 60 min doesn't look the same , likely because most of the move has been on a short squeeze rather than strong accumulation, it's difficult to say, but we'll have an answer this coming week.
This is the 60 min ZB chart, as suggested in last night's Daily Wrap, I think they've been selling Treasuries in to higher prices and rotating in to equities at lower prices, the 60 min negative here is confirmation of the 60 min positive in ES and NQ.
However short term, the 5 min ZB chart suggests a short term bounce, remember this moves opposite the market so that makes sense too.
And the 60 min VX, it shows a negative divegrence which is what we'd expect to see with a 60 min positive ES as the two move opposite each other so we have good confirmation in multiple timeframes and multiple assets.
I believe we see a downside move early next week that finishes the work on the base that was occurring late this week, I think it would have been done today if not for options expiration which needed higher prices to cause all of those put positions to expire worthless.
I believe after that, we are going to see a sharp counter trend upside rally next week and perhaps longer, we'll confirm, but that's probably where I enter more positions as I am looking for solid objective evidence before increasing long position exposure, but I think those are the probabilities for the week ahead.
