(Click on image above to enlarge it.)
This is a 130 minute chart, which represents 1/3 of a day session for stocks. We have moved to this intra-day timeframe based on the information gathered from the STX on the daily chart as prices hovered near it (11/7 and 11/10), after the daily entry signal had confirmed on 11/5 (labeled as such here on 130 min. chart).
Here we see that on 11/7, NMC had generated a Cross Kiss sell setup (labeled as NMC Cross Kiss), one of Ocean's most reliable setups. This setup was followed by a single early morning delay bar on Monday 11/10, with a very low risk entry later in the day (shown via red arrow on prices). This is a vivid illustration of how to use the formation of prices in relation to the STX on a high timeframe to guide us to lower time frames for potential trades.
The STX is used primarily as a stop mechanism, but offers other unique benefits when it is fully utilized. This setup might have gone unnoticed were it not for the near hits of the STX on the daily chart on 11/7 and 11/10, and is yet another example of one of the secondary benefits that arise from the incorporation of the STX into our trading strategies.
Note that as prices succumbed to the dual timeframe Zero Hits arising from the daily and 1/3 day setups and entries, the STX tracked the decline very well over the next few days. In our discussion of the daily chart, we noted two points of interest, labeled A and B on the daily chart. Having seen how the 130 minute chart looked at point A, let's now track the performance of the STX here on the intra-day chart (labeled B') into the oversold condition that occurred at point B on the daily chart.
Here we see that as the Cross Kiss sell setup and entry from roughly $24.80 progressed downward, the STX tracked just above the highs of the bars for the next few days. Our daily chart analysis had drawn us to the price lows on 11/12 and 11/13 (point B on daily chart), because the entire ranges of those days was below the lower standard deviation band of the Regular Ocean moving average, and because NST was registering an oversold condition as well.
It's important here to take a brief detour to mention that traders have various goals and expectations when entering a trade. Some have long term outlooks, while others are looking for short term profit opportunities. These decisions directly impact how a stop should be correctly implemented. Those who have longer time horizons might simply choose to let the STX stop on the daily timeframe continue to keep them in the trade for a longer duration of time, whereas traders who are looking for short term trades will often be more aggressive in the implementation of the stop.
One important benefit of the Ocean tools is that they allow us to identify when a market has gone to an extreme that's likely to cause a pause or even a potential reversal to occur. This time window on 11/12 and 11/13 (discussed in the daily analysis) is a classic example of that type of juncture.
Given the extreme oversold reading that the market has experienced, even those traders with a longer time horizon would be well served to use the Ocean information to come into lower time frames and use the STX stop to capture at least some of the available profits that exist. The short trade can always be reinitiated at a later date if market conditions warrant that action, and in the meantime, profits on the overextended move have been banked.
Here on the 130-minute chart, we can see that as prices spiked down into the low of 11/13, the STX was continuing to move in unison with the series of lower highs as the decline progressed. Then finally on 11/13 (labeled point B'), after prices had declined dramatically over the previous 5 days, a violent trade ending reversal occurred.
This up move resulted in the STX being violated on both a range and closing basis, taking us out of the trade one bar off of the lows up to that point in time. The STX stop level was hit at 20.16, and with the initial daily short entry at about 28.60, the trade based on it yielded a potential profit of roughly $8.40, almost a 30% decline in the value of the stock in 6 trading days.
Furthermore, the 130-minute short "add on" trade entry at roughly $24.80 would also have been exited at the same STX level of 20.16, yielding another $4.60 of potential profits in a mere 3 trading days.
As you can see, the STX was once again a timely and accurate stop placement mechanism that allowed us to capture the majority of the short-term 6-day decline, as well as to find an additional imbedded intra-day trade opportunity by its near hit on the previously-discussed daily timeframe.
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