(This is Part 2 of a series. Go back to Part 1.)
It is of critical importance that the STX be used in the proper timeframe. Used in an incorrect timeframe the STX will appear to be mediocre and of little use. However, used in the correct timeframe you will find few tools, if any, that are as powerful, beautiful and beneficial.
It is possible to formulate rules for picking the correct timeframe (or timeframes) of the STX, but I find that one of the most powerful ways—and the one that I personally use—is to look at the beauty of the STX as it follows a market, that is, to use one’s innate aesthetic sense—which no computer can yet come anywhere close to—in choosing one’s STX timeframe for a particular trade.
By beauty, in this case, I mean how faithfully the STX seems to be following a particular market during a trend. Notice that I said “during a trend.” If a market is not in the process of trending (or more accurately, is not trending in a particular timeframe), then the STX will tend towards the horizontal and should not be used in that timeframe.
It’s when a market is trending and one notices a beautiful matching of the STX and that market in that timeframe that one will then enjoy the power and extreme sophistication of the STX indicator.
Since a picture is indeed worth a thousand words, let’s give an example—in this instance, in silver—to show what we mean. (In all the charts shown in this series prices and dates have been left out. This was done so that a zoomed-in view could be used to focus attention on the piece of the market under discussion.)
Above is a monthly chart of silver. In this chart of monthly silver we are focusing on the great trend in silver that initiated in 2003 but really began its tremendous acceleration in August of 2005. Notice that the STX in this chart does not look particularly impressive.
In our terminology we would say that the STX does not look particularly beautiful during the course of this move. It stays too far away from the market and in doing so tends to give up too much of the move’s profit potential. This is true unless one is thinking extremely long-term, which some folks may want to do. But in general, we would think that we can do better.
Now let’s look at the same move in a chart of weekly silver:
(This is the end of Part 2. Go to Part 3.)
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