(Click on image above to enlarge it.)
Here is a 360-minute chart of Crude Oil. 360 minutes were used because, in keeping with our desired 1/3 to 1/5 time frame proportion, it represents one quarter of a 24 hour day. With the Globex market, Crude Oil essentially trades around the clock, so when market conditions and Ocean formations dictate, we can come down into these large intraday time frames if desirable.
In this case, we rolled down to this time frame because the daily STX was violated during the course of the day on 10/20, yet prices could not close beyond the STX. As this chart demonstrates, it pays to play detective when something that should happen doesn't. Here we see that an NMC Zero Hit occurs as of the close of the day session on 10/20 (labeled point A), and a short entry is triggered during the night session. This knowledge would have allowed us to re-enter the position, anticipating another down draft, which is exactly what the market then did.
Although not quite as exacting as the intra-bar violations of the STX, reactions that come within close proximity of the STX can be used as clues to potentially look to a lower time frame for trade opportunities as well. For instance, on 9/30 (the Tuesday after the entry gap on Monday 9/29), prices came back to very near the STX (labeled "No STX Hit" on daily chart).
Since the big-picture decline was predicated on a now-confirmed weekly Cross Kiss Zero Hit, along with simultaneous daily Zero Hits a few days earlier, any opportunities that we can find to press the trade should be exploited. In this case, the near hit of the STX on the daily chart could have been used as a clue to look to a lower time frame for another trading opportunity.
Here at the 360-minute chart, we see that the NMC2 had generated a very reliable Cross Kiss Zero Hit on 9/30 (second sub-graph, far left side of chart), in unison with the STX near hit on the daily time frame. This could (and should) have been exploited and used as an add-on trade with very low risk. The fact that it was a Cross Kiss Zero Hit made it all the more compelling as a trade opportunity. The Cross Kiss is among the most powerful Ocean setups, and should be honored whenever possible.
Another example of this technique can be seen on 10/14. At the daily time frame there was a near hit of the STX (labeled as point A on daily chart) which could also have been used as a clue to look to a lower time frame for a trade opportunity. When we consult the 360-minute chart, we see that there was an NMC Zero Hit on 10/14 (labeled point B), offering yet another very low risk entry point for an add on trade. Although the STX is designed to operate as a highly effective stop mechanism, the behavior of prices when in proximity to the STX can also be effectively used as a reason to look to lower time frames for potential trade setups.
If another short entry had been taken on the basis of the daily STX range violation with no close confirmation (on 10/20) combined with the 360 minute intra-day Zero Hit (point A on 360 min. chart), an additional 6 days of significant downward price action then occurred. Finally on 10/29, prices moved decisively through the STX stop (labeled point B on daily chart), taking us out one bar from the ultimate lows up to that point in time.
This type of definitive violation of the STX where the entire range is above it tells us that at least short term, this market is due for a pause. If the decline later resumes, we'll employ the same type of Ocean-based reasoning to identify our traditional multi timeframe entries as well as for the implementation of the STX stop once the trade has been initiated.
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