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 Trading the End of Simple Corrective Patterns in the Direction of Momentum

By Jaime Johnson

What do traders have to do to survive the current turbulent markets? One answer is simply turn off the news and use a simple objective trade entry strategy. In this article, I will teach a simple trade strategy that I use not only during turbulent times but during normal trending times. The trade strategy is based on trading in the direction of momentum and entering trades following a corrective pattern. The trade direction is determined by the higher time frame momentum and the trade is executed in the direction of the lower degree time frame momentum. While corrections usually unfold in the opposite direction of the trend or momentum, by entering a trade near what is likely the end of the correction, the trader very likely will be entering a position in the direction of the higher degree momentum.

Higher Degree Time Frame Momentum
Before jumping into how to determine the momentum of the higher degree time frame, I must explain what is the higher degree time frame. If I am trading a 60 min. chart, the higher degree time frame is the daily chart. I trade in the direction of the momentum of a daily chart. The higher time frame should be 3-5 times the lower time frame.
The momentum position is determined in the higher degree time frame by an oscillator. While I use the proprietary DTosc (a combination of a Stochastic and RSI), any oscillator may be used as long there is an objective way to know when the oscillator is overbought, bearish, bullish, and oversold. The way to determine which setting for the oscillator should be used is simple. Use the setting in which the bearish reversals (when the oscillator changes from bullish to bearish) and the bullish reversals (oscillator changes from bearish to bullish) coincide relatively well with swing highs and lows of the market.