Click on the chart to enlarge it.
We roll down to a 56-minute chart (thus allowing 6 bars per day of that duration and the last (7th) bar being a 54-minute duration), and immediately see that an NMC2 ZeroHit has previously occurred as of the bar ending at 10:18 AM MST (marked A in middle sub-graph).
Note that this ZeroHit was exactly like the one on the 78-minute time frame in that NMC had a one-bar overshoot, while NMC2 precisely defined the termination of the counter-trend drift pattern, all legitimate ocean formations.
Fortunately, the Ocean range volatility multiplier had not allowed a trade prior to the 12:42 time of the 78-minute bar's completion, and thus we're not forced into a decision as to whether to chase the trade to achieve our entry on this timeframe.
Note also that the same NMM ROC “slingshot” formation (NMM ROC below its lower boundary, pt. B in bottom sub-graph), and support of prices at the NMA (shown with trio of arrows below prices), were also present on this chart as well.
During the last 56-minute bar of the day, the option price finally exceeds the entry filter threshold, without an interim Ocean-based negation of the trade setup, and so we enter the trade near the close. Let's assume that we got the worst (highest) price of the 56-minute bar and thus are filled at $2.95 on the put.
It's worth noting that the entry was also tripped at the same time on the 78-minute chart, at the same price level.
Entering an option trade near the close is a somewhat risky transaction, but analysis of the underlying stock on multiple time frames, as well as dual timeframe analysis of the option itself, and the lower option close relative to the prior day, all indicate that the late day entry is the correct thing to do.
Now only time will tell whether we're right. A quick calculation of the initial stop (the Ocean based stop minus the range volatility factor, taught at the workshop) shows us that a move below about $2.30 will force us out of the trade. That's roughly a 70-cent risk, about 25% of the purchase price and a bit more than I like, but acceptable given the weight of the evidence in favor of the trade.
(This is the end of Part 8. Go to Part 9.)
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