Filters and Triggers
As most of you already know. Our method consists of a combination of Filters and final entry Trigger. You should always be aware of the status of these filters at all times. The filters determine what side of the market we want to be on during the day or the markets BIAS. Ex: If we have strong bullish filters that are rising, we do not wish to load the boat on short trades. In order to have a bias, we need at least a 65% majority of Filters leaning to one side of the market.
BULLISH FILTERS: Trade normal size on longs, if taking shorts go in a smaller position.
BEARISH FILTERS: Trade normal size on shorts, if taking longs go in a smaller position.
MIXED FILTERS: Take caution based on near by support and resistance levels. Wait for a confirmed trigger.
The first filter we use, which can be determined even before the 9:30 AM trading begins is to see where price is trading as compared to its daily pivot level. If price is trading above we look for long Triggers, if price is below we look for short Triggers.Filter 1, The 15 Minute Trend -
The general direction of the a markets price. Just place a simple candle stick 15 minute chart on your eSignal or Trade Station layout with a simple moving average. We like to use a 5 period moving average and a 20 period moving average. If the 5 period has crossed above the 20 period we conclude that the trend is up. the trend is down when the 5 period is below the 20 period. The 15 minute trend produces the largest weighting in our Filters indicator.Filter 2, The Daily Pivot -
Floor trader daily pivot points are levels at which the market may change direction. They are derived by calculating the numerical average of a particular stock's high, low and closing prices. Pivots are available in most every charting platform available today (eSignal, Ensign, Trade Station, Cyber Trader, IRT, Sierra). The reason pivot points are so popular is that they are predictive as opposed to lagging. Because so many traders follow pivot points you will often find that the market reacts at these levels. This give you an opportunity to trade. If the current market price is below the daily pivot then we are bearish on this filter, if above, we are bullish.Filter 3, Advance/Declining Issues -
A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30 stocks, whereas the advance/decline index can provide much more insight into the movements of the market. We look at the current advance/declining index number as well as the trend of the advance declines to determine a bullish or bearish bias. ex: If Advance/Declines were -835 and falling, our bias would be bearish. If Advance/Declines were 568 and rising, our bias would be bullish. When advance/declines are between -300 and +300 it normally means the market is in an undecided chop zone. Be careful in this range.Filter 4, Stochastics -
We place a stochastics indicator on a 3 minute chart. There are times when all 3 of the above indicators align. If we just monitored those indicators the strength of the Filter would many times approach 100% and that reading would imply that a trader could just buy or short at the market and open up the cash register. We needed a way to try to help the Filter indicate that a trader might be chasing a move. The 3 minute stochastics does just that. If all the other indicators suggest a strong bullish move, then when the 3 minute stochastics rises above 50%, it begins to weight that the percentage of success of the Filters is reduced. The percentage would increase when the reading of the 3 minute stochastics indicate an opposite move has developed on a larger time frame.The Trigger -
A smart custom programmed tool Alex has programmed to enter in to a trade. The trigger looks at things such as, order flow/price action, volume and traditional candle formations (for example, shooting stars and hammers). We use it to place trades intra-day that will be in alignment with or against the filters. Trigger calls with the filters should be taken with normal size. Triggers against the filters should be taken with lighter size.Trigger Stop aka ExitAssist -
An automatic stop calculation program used for entering a trade with the appropriate stop, as well as automatically trailing your stops when your in a position. Alex will alert of the trigger stop levels when they change.
Assuming we have a confluence of favorable Filters when the market begins its inevitable pullback, we begin the process of measuring that pullback. In its simplest form, we are looking then for an oversold market in the shortest of time frames. Once the pullback has qualified per our mathematical models, we then turn to our Triggers. In other words we need a setup to go long. Not much different then looking for a chart setup or an indicator based entry.
If you have questions intra-day, feel free to ask in the trading room. Alex will alert us throughout the day to the status of the filters and triggers. He will also provide guidance on trade management once a signal is called.
Please also see this post on Alex's chart setup and the indicators you should place on your chart: viewtopic.php?t=151