Trading Dow Jones this morning using the Average True Range Strategy resulted in a profit of thirty point or $150 per contract.
Trading Dow Jones Using the Average True Range Strategy
The entry criteria is simple. One higher timeframe is used to identify the direction of the trade. In this case the forty-five minute chart was indicating an uptrend. Based on the trend pattern of the forty-five minute chart, only long positions could be entered. The three minute chart indicated that price had retraced to the Average True Range stop and an entry was generated at 17796. The profit target set in the strategy was at 30 points. The profit target was achieved and an exit was achieved.
Again, just like the Dow Jones trade, the Nasdaq 45 minute chart was also trending up. It was not overbought or oversold. This indicated only a trend entry could be generated. The 3 minute retraced to the ATR indicator (plus sign) and an entry was generated on the Nasdaq chart, as well.
Also, notice the previous ATR Short Entry on the Dow Jones chart. This entry was not confirmed or going into the higher timeframe so this trade would be filtered out as the higher timeframe was not confirming the market would move down. Instead, it was indicating quite the opposite — that the market would be moving up. These are the trades that we filter out by using multiple timeframes.
By filtering the trades using the higher timeframes, you did not take that trade because the 45 minute was trending up. This is why we filter trades with the higher timeframes — we prevents potential losses. Although as traders, we can never filter out all the losing trades (it is just part of the trading business), there are some that we can filter because the higher timeframes are not confirming the entries on the lower timeframes. Trading Dow Jones this morning gave excellent examples of both filtering a trade and trading with the higher timeframe.