The Master Trader Method looks for compelling price patterns with alignment on Multiple Time Frames (MTF) for all trading and investing ideas.
These are the Concepts that form the Strategy underlying Master Trader Technical Strategies (MTS):
This lesson is going to walk you through all the above MTS Concepts to show why DDD was a beautiful Core Long with easy entry and trade management.
DDD was a trade given to the MT subscribers of our Swing and Options Advisory Letter as well as a short put spread in the Weekly Options Trader.
As you will see below, we sold half of DDD for great profits. The short put spread expired for maximum profit (i.e., the credit received).
Below is a daily chart of 3D Systems Corporation (DDD).
MTS Concept – Compelling Price Pattern (With Price Void)
Candlesticks convey different messages of supply and demand.
We read those messages and look for high-probability setups using patterns of candlesticks in multiple time frames to trade stocks and options.
The Structure of the price pattern will speak to us about the relationship between buyers (demand) and sellers (supply) and the likelihood of reversals and trend continuation.
Here, the Setup is the bullish retracement into the Minor Support gap area and bullish engulfing reversal.
We entered at $20.50/share in the candlestick shown.
As with all trade setups, we need a Price Void on the time frame being traded, meaning there is insignificant resistance to the left for longs, allowing the issue to move higher towards its target.
Because of the big Price Void on the weekly and monthly charts, we recommended DDD as a core long (i.e., holding period of weeks to months).
MTS Concept – Trend & Trend Quality
On 5/11 when first recommended on the +Gap on earnings, DDD was in a short- to intermediate-term downtrend (see declining 20- and 50-MA), but longer-term uptrend (up-trending 200-MA, red line).
The close of 5/11 had a Bullish Wide Range Bar (+WRB), which traded through a prior pivot high. This effectively “broke” the downtrend and moved it to a sideways trend (although the price action as always controls).
DDD then retraced until we got the bullish reversal on support as discussed above.
This is what we call the “no-brainer” anticipatory place to enter the short-term transition from downtrend to uptrend.
After entering, the price action was very bullish, with higher high, higher low candles, Red Bars Ignored (RBI), shallow retracements, etc.
MTS Concept – Support and Resistance
Major Support (MS) in an uptrend is prior lows. Minor Support (mS) is prior highs.
In strong trends, we expect the reversal to occur on controlled, shallow retracements to mS.
Notice here the bullish reversal where we entered occurred on mS as expected.
Had the entire gap been filled, that would have ruined the bullishness of the pattern since then the message of the +Gap/+WRB would have been negated, which is then bearish.
MTS Concept – Multiple Time Frame (MTF) Alignment
Below are weekly and monthly charts of 3D Systems Corporation (DDD).
In MTF, we are looking for the “bias” of the multiple time frames to be in alignment. They don’t have to be in the same trend, per se.
We know the daily was a bullish entry as discussed above.
The weekly chart also had what we call a New Low Reversal, meaning it broke down and immediately snapped back up.
The monthly chart is in an uptrend and was a Master Trader Buy Setup. It was a retracement and reversal with a Price Void.
Since all time frames were bullish, we recommend buying DDD as a Core long.
We enter with proper position size, set a protective stop (which was under the red candle preceding the earnings +Gap), and manage in between per your Trading Plan on position management.
MTS Concept – Relative Strength or Weakness
Using Relative Strength and Weakness is one of those factors to increase the odds of trade success.
Relative Strength suggests continued out-performance; however, that does not mean we want to own that issue.
Although that is not a reason alone to take a trade, combining the concept with our other checklist items (as we are doing herein) helps ensure that you will only trade the best setups with the best odds of success.
Although not shown, on 5/11, the broader markets had a bearish gap down under prior major pivot support, so DDD was showing incredible relative strength, another bullish plus.
MTS Concept – Retracement Analysis
Retracement levels are used to measure the STRENGTH or WEAKNESS of a move counter to the prevailing trend.
The Retracement levels are a percentage measurement between significant highs and lows and suggest the next likely move once a compelling pattern and reversal sets up.
It can also suggest the unlikelihood of continuation at times.
On the daily chart of DDD when we entered at $20.50, it retraced approximately 50% from the high of the +WRB after earnings to the low of the preceding bar’s low.
This is a bullish retracement level, with the pattern supporting the entry.
MTS Concept – Moving Averages and Volume Analysis
Moving averages simply plot the average price of things over a certain number of data points.
They are used on all trading time frames and smooth out the direction of the underlying instrument. We discussed above the three MAs we use on daily charts.
In our courses, We teach how to objectively use moving averages to “speed up” the technical analysis process using MTS.
If moving averages are not in alignment with actual price support and resistance and put into context of the trend on Multiple Time Frames (MTS), then they are misleading squiggly lines which will produce misleading information.
On the daily chart of DDD, the +Gap happened right at the 200-MA (long-term uptrend).
The day we entered at $20.50, the 20-MA (short-term trend) has flattened out, visually confirming a buyable pullback in a longer uptrend with a proper Setup (which we obviously had).
As pattern traders, Volume Analysis is secondary to us. Candlesticks and Setups control.
However, it is a “plus” if volume spikes at turning points, and increases in the direction of the intended bias.
Here, notice the massive volume spike on the +WRB Igniting day on earnings. That is a very positive, committed volume, suggesting an overwhelming amount of demand over supply.
Continuing with our MTS Concepts Checklist, everything is a plus so far Houston!
MTS Concept – Bar-by-Bar Analysis (Green Bar Ignored – GBI / Red Bar Ignored – RBI)
Master Trader Technical Strategies (MTS) teaches patterns, MTS also teaches how to objectively read the “messages” of individual bars to see if they confirm or refute what the pattern suggests.
Below is a daily chart of 3D Systems Corporation (DDD), with the bars highlighted after long entry.
After entering, the price action was very bullish, with higher high, higher low candles, Red Bars Ignored (RBI), shallow retracements, etc. — a positive for easy trade management.
MTS Concept – Market Bias based on Trends and Market Internals
It’s a plus to be trading with the bias of the broader markets and sectors.
Market internals tells us if the markets are near short-term swing turning points, so best to time entries with this in mind.
However, because of the earnings +Gap and Setup discussed here using MTS Concepts, we say that DDD was “on its own page.”
On its own page is a reference we use when the underlying stock doesn’t care what the broader markets or sector is doing (market down or flat and the stock is up); rather, it’s doing what it wants at the moment with the current supply-demand relationship.
MTS Concept – Trade Management
Once in a trade, you are simply managing per your Trading Plan (i.e., rules on stops, taking partial profits, and trailing pivots on the time frame being traded).
Once in a profitable position like DDD, if you are to attain a larger gain based on the larger time frame (like we are on the monthly chart), you will have to let it correct.
Your first reference point of demand in a long position is the prior bar’s low.
DDD has been so bullish since our long entry that it has not even traded under a prior day’s low yet!
However, because it started accelerating towards resistance (you can see on the daily and weekly charts), prudent money management said to take some nice gains off the table.
We moved the stop for half of the position to the 30-Min. low and sold at Sold half at $30.75/share for an $8.31/share gain (34% Return on Capital).
Another strategy we use in trade management to lower our cost basis on issues we still want to own — but get short-term extended — is to sell call options (a Covered Call) against our long stock position.
In doing this, we receive money from the call buyer for the right to buy our stock from us on or before expiration.
The chart pattern is our guide for timing the sales of the calls with amazing accuracy using MTS.
Covered calls are an excellent way to lower your cost basis over time.
With DDD, we sold the $32 calls (which expired in one day at a full profit) for $.35/share to leg into a covered call and lower basis.
On the last day shown, into the morning strength, we also sold the $34 calls (which expire in seven days) for $.40/share, further lowering our basis.
Now on the back half of our core position (now a covered call), since the monthly chart is not at its destination so to speak (i.e., resistance), we have to let it retrace on a smaller time frame.
Your second reference point of demand in a long position is a prior pivot low.
If a long position is within a “Price Void,” you will hold part of the position, even if it violates a prior bar’s low — unless the price accelerates rapidly.
If so, sell half below a prior low.
Let the stock pull back and form a pivot, then move your stop under that pivot low.
Thus, we will sit through any bullish retracement and let it pivot, move higher, then move the stop under the new higher low pivot.
To protect gains, we have already previously raised the stop under the +WRB two candles prior to the last candle shown.
To learn Master Trader’s Advanced Management Strategies, click HERE
MTS Concept – Conclusion and Trading Plan
Trading is all about finding high probability Setups, then simply Enter and Manage them per your Trading Plan unemotionally and objectively. A Trading Plan documents Your Approach to the markets.
We hope that you have learned how to use the MTS Concepts with this live case study.
MTS applies to trading or investing in anything that moves, and on any time frame.
Once you have an objective approach to trading the markets (which is the purpose of our stock and option seminars), you have the requisite objective, conscious knowledge.
Then it is simply a matter of getting experience to get you to the “unconscious competence” level of trading mastery.
The multiple points are easy to assimilate into your trading plan. Through Master Trader courses, ongoing monthly live coaching sessions, and MT Live each week, you will be using MTS multiple concept analysis faster than you can imagine.
You get that experience after education from proper trading, position and trade management and review, and having the Discipline and Patience to follow Your Plan and Method!
Good trading folks! Do yourself a favor and get on the “fast path” to learning with one of our seminars!
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We love hearing from our subscribers about their successes and journey towards trading mastery!
“Hi Greg, Hi Dan,
November last year I bought the Platinum Strategies Package. I finished the last module today. I learned a lot.
I want to thank you both for all the effort you put into the courses. It helped me a lot in my trading. It made me (even now) a lot more profitable and (maybe more importantly) more consistent and confident in the markets. I’ve been trading for many years, but with varying success and many failures. You put me on the right track.
The profit I made these last few months already paid for the costs of the courses, so that was another good trade 😊.
Thank you again, and I will keep on following your webinars and repeating your courses to ingrain all this to an unconscious competent level.
Best regards, Maarten B.”
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Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra Managing Director of Master Trader
Dan Gibby Chief Options Strategist
