Whether trading the eMini’s, ForEx, Commodities, Metals and Oil, ETF’s, or Stocks, successful traders set up their trades by adhering to the ’3 to 4′ Rule. The Rule gives traders the confidence they need to recognize and respond quickly to the best trading opportunities offered during any given day.
The power of the ’3 to 4′ Rule is certainly its simplicity in helping traders gather and organize their thoughts and intelligence on an instrument they desire to trade. Upon implementing the ’3 to 4′ Rule, they can quickly decide if the trading opportunity is supported from time-frames that may affect the outcome of their trade.
Simply stated, the ’3 to 4′ Rule is an incremental assessment of the trading instrument’s ability to move in the desired direction within the following designated forward looking time-frames: 3-4 weeks, 3-4 days, 3-4 hours, 3-4 minutes. The trader then has the ability to review the information for completion of a trade within a 3-4 second time-interval.
Of importance to note is that assessments of the time-frames are forward looking. Since traders do not have a ‘crystal ball’ to foretell the future, the forward looking assessments must be derived from technical analysis of current indicators and patterns.
Traders can assess the first two forward looking time-frames (3-4 weeks and 3-4 days) before the trading day begins. Once the time-frames are assessed, the trader opens the day with the focus that matters most during the trading day. That is, a focus on the dynamics that will move the trading instrument during the time-interval of the trade.
Traders assess the next two time-frames (3-4 hours and 3-4 minutes) as the day unfolds. The assessments of the time-frames hold the final key to placing a successful intra-day trade.
When all of the forward-looking time-frames (3-4 weeks, 3-4 days, 3-4 hours, and 3-4 minutes) show support for the trade, the trader responds astutely to the ‘golden moment’-the 3-4 second window of opportunity-when the trader surmises that all the time-frames (longest to the shortest) align to support the trade.
To understand the ’3 to 4′ Rule further, let’s take a look at the kind of methods a trader can use to assess each of the time-frames within the Rule.
3-4 Week Time-Frame. Considering information that pertains only to the next 3-4 weeks, the trader can weed out all the extraneous ‘noise’ he/she is bombarded with that may confuse the decision to trade. A trader’s perspective can become quite clear when considering only information that affects the instrument within the upcoming 3-4 week time-frame.
Effective methods to assess the 3-4 week time-frame are Elliott wave analysis on a 6-month chart pattern and monitoring the intermediate-term trend of the instrument.
3-4 Day Time-Frame. Being ‘in-tune’ to the natural swing of the market/trading instrument that may transpire within the next 3-4 days is essential for the trader to align his/her trade with prevailing direction and momentum.
Effective methods to assess the 3-4 day time-frame are the Taylor Trading Method 3-day cycle, Elliot Wave analysis on a 1-month chart pattern, and monitoring the short-term trend of the instrument.
3-4 Hour Time-Frame. Being ‘in-tune’ to the intra-day swing of the trading instrument with respect to direction, momentum, and duration is very beneficial for grasping the upcoming 3-4 hour time-interval. The trader can monitor the intra-day direction using a variety of tools.
Effective tools to monitor an instrument’s intra-day direction are the use of potential daily extreme values generated by the Taylor Trading Method and Average True Range (ATR) values for derivation of an instrument’s potential daily range.
In addition, monitoring the instrument’s price action to its Value Area can generate reliable signals with regard to changes in intra-day price direction. Considering where to place a trade with respect to the instrument’s Support/Resistance Levels and Pivot Points is also beneficial in successfully timing the trade.
3-4 Minute Time-Frame. Being ‘in-tune’ to the immediate direction and momentum of the instrument’s price gives the trader the advantage of ‘heading in the right direction’ within moments of placing the trade.
There are many useful tools to assess immediate direction of the instrument. Some tools to consider are monitoring the instrument’s price to its 20-day Moving Average and evaluating its 14-day Average Directional Index (ADX), 10-day Relative Strength Index (RSI) and 5/4-day Stochastics.
3-4 Second Time-Frame. The ’3 to 4′ Rule guides the trader to systematically evaluate each trade so when the ‘golden moment’ presents itself, he/she can confidently respond within a 3-4 second time-interval. At that moment, the trader systematically confirms the appropriateness of the trade by reviewing and verifying its 3-4 week time-interval (1- second lapse), 3-4 day time-interval (2-second lapse) 3-4 hour time-interval (3-second lapse) and 3-4 minute time-interval (4 second lapse) and seizes the moment.
In summation, following the regimen of the ’3 to 4′ Rule conditions the trader to be prepared for each and every trade. In today’s information-rich trading environment, thoughtful preparation is the successful trader’s advantage over those who blindly place a trade according to a few, predetermined signals that embrace a limited trading perspective.
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