(Click on image above to enlarge it.)
Here at the daily level we see that on 9/29 price action triggered entries based upon the Ocean setups from three timeframes as noted on the chart. Prices immediately cut below the STX thus allowing it to be positioned above the price action and therefore to operate as a stop for a short trade.
Prices declined rapidly for a week or so, until a short term consolidation set in, culminating in a near hit of the STX on 10/14 (labeled "STX Near Hit"). As we've learned through other chart examples, this is often an opportunity to roll down to lower time frames looking for possible add-on trade setups. Although the charts aren't shown in this example, the 720-minute (1/2 day) timeframe was generating an NMC/NXC Zero Hit, and the 360-minute (1/4 day) time frame was generating an NMC2 Zero Hit, allowing additional low risk entry points.
After the near hit on 10/14 at the end of the consolidation phase, prices once again began a cascading decline into the low made on 10/28. Note that we were interested in this time window by our analysis of the 2-day chart where we noted that NMC and NXC had exceeded their lower standard deviation and oversold thresholds. This is often a warning that the move has gotten overextended and subject to a possible pause or reversal.
In this daily chart, we see that the STX was violated on both a range and closing basis on 10/29, one day after the ultimate low for the move up to this point in time. In other words, the STX has done exactly what we would have expected of it, keeping us short during the entire month-long down move from 9/29, and taking us out of the trade one day off the ultimate low.
In addition, the near hit that the STX provided on 10/14 gave us an important clue to go looking to lower time frames for other trade opportunities - in this case the 360- and 720-minute sell setups that I described previously (charts not shown). In many ways, the STX is like getting two critically important tools in one: 1) A very accurate and timely stop mechanism, and 2) a diagnostic instrument to guide us to other powerful low-risk trade setups along the way.
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