The 7000 tick chart is going to act like an hourly chart. Here is where we'll form our market bias. Actually the rule is pretty simple. If the MACD is above the zero line (green) buy, if it is below (red) sell.
The MACD serves no other purpose except determine our market bias We are strictly trying to keep to our methodology. The MACD indicator is an oldie but a goldie and early on I was shown how to "supercharge" it by using a 4,6 setting. We are not interested in the signal line, only in the histogram.
But what of the other indicators, what can they tell us. Let's look at the donchian channel first. I like donchian channels because they help train the eye to see what the highs and lows are doing and gives a brilliant indication of trend. When combined with the MACD a clear definitive explanation of what the market is currently doing. If both match we are in a trending market and here the greatest opportunities lay to let a trade run on. If the MACD is opposing what the donchian channel then the market is correcting and in a counter trend. Opportunities still exist but we have no room for error in our trade execution.
A final observation on this relationship. Have a look at the price action in the square marked as market indecision. See how it contradicts the MACD signal. A clue that the market has just about exhausted this current run and is getting ready to reverse. This can be tricky time to trade and a lot harder to spot in real time than on a post dated chart.
The final indicator in use is like a range indicator and is a very useful tool. It measures the difference in pips of the two donchian channel levels. On the 70 tick chart we will use the value to identify the box pattern for entry but on the 7000 and 700 tick we are more interested in the pattern the indicator makes and the strength of the pattern. Lets walk through the indicator
The chart starts off at A. in a strong uptrend. The indicator builds in value as new highs are formed in this strong push up. At B. the push stops and a new high is formed. It might just be a peak more often it's a flat like this example as the lower donchian channel catches up to current market conditions. Remember all indicators lag and when interpreting a indicator this must be taken into account. At C. it does and we see a narrowing of the range as the market settles into range at D.
Ranging periods are typified by this pattern at D. Long flat periods of low range value with the odd peak and valley followed by another flat period. It marks indecision in the market. Again still plenty of opportunities will present but we are aware of this indecision in the markets and would be hesitant to let a trade run on. As D. comes to an end we see the range narrowing. Typically the game players are now positioning themselves ready for the next move. Never the bulls or the bears want to show their hands and the pressure starts building. Eventually something gives and in this case it's the upper channel and the price breaks through at E. This push is short lived and at F. the indicator flattens out as the price can't from new highs and the lower channel plays catch up. Then we get a conflicting signal at G.
Here the indicator is catching up to the current market and the value falls sharply to reflect it. This should mean a range is developing like back at C. and D. But PA shows that in fact the upper channel has been breached and a strong push up has occurred. This conflict in meanings is a sign the market is up to something and since our MACD has also given conflicting signals we have been given the heads up that things are about to change. There are no more bulls left to continue this current movement.
A final pause at H. and the market reverses at I. and J to M shows the pattern reversed for a downward movement.
This indicator is also great at assessing the potential of a trade to run on. The beginning of a strong trend is almost always typified by a small range value. Like it or not, the real players have their own rules to play by and they do leave evidence behind in PA that can be decoded. How I have done it here is just one way. So trades taken at the beginning of runs A,E, I and K have the greatest potential to run on. Now we are starting to pick our swing tops and bottoms. As the trend comes towards an end at B,F,J and L respectively we must be more pessimistic about the potential of each new trade.
So in summary we are using our 7000 tick chart to determine in essence our market bias. Primarily this is determined by the MACD histogram but the skill comes down to the ability of the speculator to interpret all the information the market can supply.