NQoos - Trend Divergence


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Low Risk Trading Technique One-Time Framing

One-time framing allows you to know when the market is in a short-term trend, either up or down. It will constantly help you determine which direction the market is trending and will help you decide where to put on a position (low risk in most cases) in the direction of that short-term trend.

One-time framing will also tell you where your stop order has to be or, in other words, where the market will stop trending, and it will tell you when you shouldn't be in the trade anymore, because the trend is most likely over.

One of the best things about one-time framing is that it also tells you where to move (or trail) your stop order, which allows you to lock in profits when you've gotten in on the current short-term trend.

There are two kinds of one-time framing:
1) One-Time Framing Up: When the market is trending up.

2) One-Time Framing Down: When the market is trending down.

This can all be done with a simple 30-minute bar chart. You don't need anything else—no crazy technical indicators or weird algebraic calculations—making this a great technique for even the most novice trader. But many veteran traders also use the method on a daily basis, and have done so for many years, for one simple reason: It works! Now let’s look at how.

Important Note:

These rules are written for trading "one-time framing" with the E-Mini S&P 500 futures. The rules for trading other markets are included at the end of the chapter. As with the other trading signals, I believe you should use the pit-traded contract for charting the market. So if you are trading the E-Mini S&P 500, you should use the chart for the pit-traded S&P 500 contract. If you are trading the E-Mini NASDAQ 100, you should use the chart for the pit traded NASDAQ 100 contract.

One-Time Framing Up

(Up-trending Market)

Let's look at the rules for one-time framing up:

1) The first 30-minute bar opens and closes. Obviously, a high and low are established in that 30-minute bar.

2) The second 30-minute bar opens and makes a new high at least .50 points higher than the first 30-minute bar's high, and it doesn't make a new low. Now we have a chance of one-time framing up, but it's not for sure yet.

3) If the third 30-minute bar opens and the low does not get more than 1.00 point below the previous 30-minute bar's low, then we know we are one-time framing up, and I would look to get long as close to where the market will stop one-time framing up. (In other words, I will try to get long as close to the low of the previous 30-minute bar. See important definition below.) You'll want your sell stop more than 1.00 point below the previous 30-minute bar's low. Important: This bar does not have to make a new high to be one-time framing up!

4) The fourth 30-minute bar opens, and the low of this bar does not get more than 1.00 point below the previous 30-minute bar's low. The market is continuing to one-time frame up and the uptrend is continuing. And now I can move my sell stop up to 1.00 point below the low of the previous 30-minute bar to protect my profits. Important:

This bar does not have to make a new high to be one-time framing up!

5) The fifth 30-minute bar opens, and the low of this bar does not get more than 1.00 point below the previous 30-minute bar's low. The market is continuing to one-time frame up, and the uptrend is continuing. And now I can move my sell stop up to 1.00 point below the low of the previous 30-minute bar to protect my profits.

6) The sixth 30-minute bar opens and finally gets more than 1.00 point below the previous 30-minute bar's low. The market has now stopped one-time framing up, and the uptrend is most likely over.

Important Definition

Stop One-Time Framing Up: when the market gets more than 1.00 points below the previous 30-minute bar's low. There is now a good chance the uptrend is over, and the market will become a two-way market. That does not mean you should immediately get short! It means that the market may begin to trade back and forth.

Let's look at the rules for one-time framing down:

1) The first 30-minute bar opens and closes, so obviously a high and low are established in that 30-minute bar.

2) The second 30-minute bar opens, making a new low at least .50 points lower than the first 30-minute bar's low, and does not make a new high. Now we have a chance of one-time framing down, but it's not for sure yet.

3) The third 30-minute bar opens and doesn't get more than 1.00 point above the previous 30-minute bar's high, and we know we are one-time framing down. Look to get short as close to where the market will stop one-time framing up. (See important definition below.) You'll want your buy stop more than 1.00 point above the previous 30-minute bar’s high. Important: This bar does not have to make a new low to be one-time framing down!

4) The fourth 30-minute bar opens, and the high of this bar does not get more than 1.00 point above the previous 30-minute bar's high. The market is continuing to one-time frame down, and the downtrend is continuing. And now I can move my buy stop down to 1.00 point above the high of the previous 30-minute bar to protect my profits. Important: This bar does not have to make a new low to be one-time framing down!

5) With each successive lower high on each 30-minute bar, I can continually move my buy stop down and protect my profits (always 1.00 point above the previous 30-minute bar's high).

6) The sixth 30-minute bar opens and finally gets more than 1.00 point above the previous 30-minute bar’s high. The market has now stopped one-time framing down, and the downtrend is most likely over.

Important Definition

Stop One-Time Framing Down: When the market gets more than 1.00 point above the previous 30-minute bar's high, there is now a good chance the downtrend is over. That does not mean you should immediately get long! It means that the market may begin to trade back and forth.

Some Important Things to Remember about One-Time Framing:

1) One-time framing should only be done using a 30-minute bar chart. In my opinion it doesn't work on any other time frame. This was originally a Market Profile technique, all of which are based on 30-minute bar charts.

2) When the market is one-time framing up, the best and lowest risk trades will be to get long as close to where the market will stop one-time framing up (see definition on previous page). The market will usually, at least once a day (when one-time framing up), give you a chance to get long very near where the market will stop one-time framing up. But sometimes in a very strong up-trending market, the market will not pull back very much, and then you'll have to decide if it's worth the risk to get long because your sell stop should be 1.00 point below the previous 30-minute bar's low. That is the technically correct place for the stop order, but you don't have to put it there if you want to take less risk. In my opinion, sometimes the risk is too big if the market doesn't get close to the previous 30-minute bar's low when the market is one-time framing up.

3) The opposite is of course true for one-time framing down. The best and lowest risk trades will be to get short as close to where the market will stop one-time framing down (see definition on previous page). The market will usually, at least once a day (when one-time framing down), give you a chance to get short very near where the market will stop one-time framing down. But sometimes in a very strong down trending market, the market will not pull back very much, and then you'll have to decide if it's worth the risk to get short because your buy stop should be 1.00 point above the previous 30-minute bar's high. That is the technically correct place for the stop order, but you don't have to put it there if you want to take less risk. In my opinion, sometimes the risk is too big if the market doesn't get close to the previous 30-minute bar's high when one-time framing down.

4) Something that often confuses people about one-time framing: When the market is one-time framing up, it doesn't have to make a new high each 30-minute bar to continue to one-time frame up, and for the uptrend to continue, it simply can't get below the previous 30-minute bar's low by more than 1.00 point. This shows that enough buying is coming into the market to prevent it from going down. And of course the

opposite is true....

5) When the market is one-time framing down, it doesn't have to make a new low each 30-minute bar to continue to one-time frame down, and for the downtrend to continue, it simply can't get above the previous 30-minute bar's high by more than 1.00 point. This shows that enough selling is coming into the market to prevent it from going up.

6) Trailing your stop order: Use the previous 30-minute bar to know where to trail your stop order if you've gotten in on the trend. If the market is one-time framing up, you'll want your sell stop more than 1.00 point below the previous 30-minute bar's low. If the market is one-time framing down, you'll want your buy stop more than 1.00 point above the previous 30-minute bar's high.

7) Money Management: When trailing your stop order, there will be times when the market will give you a large profit, and because of the one-time framing technique, your stop order could be 2.00-3.00 points above (or below) where the market is currently trading. In these cases, using a money management stop is very important. In other words, if the previous 30-minute bar's high or low is 2.00-3.00 points away, that may not be the best place for the stop order. The market can often give you profits and then take them away very quickly. In these cases you'll want to trail your stop order much closer to where the market is currently trading. You must protect your profits when you get them!

8) The market can start one-time framing (up or down) from any 30-minute bar, as long as that bar is a swing high or a swing low. (See definition later in this chapter.)

9) Always remember that if the risk is too big, don't do the trade. There will always be more trades to come!

1) The first 30-minute bar opens, and the high and low are established. High: 1266.30 / Low: 1261.00

2) The second 30-minute bar opens and makes a new high by at least .50 points higher than the previous 30-minute bar, and the market doesn't make a new low. We now have a chance of one-time framing up, but it's not for sure yet. H: 1267.00 / L: 1262.50

3) The third 30-minute bar opens and doesn't make a new low by more than 1.00 point. We are now one-time framing up! H: 1273.00 / L: 1265.00

4-6) The market continues to one-time frame up in bars 4-6. Traders know that buying breaks to get long will be the best chance to profit as the uptrend continues.

4) H: 1274.50 / L: 1268.50 5) H: 1275.50 / L: 1271.50 6) H: 1273.50 / L: 1271.50

7) The market finally makes a new low by more than 1.00 point and stops one time framing up. Now we know the uptrend is over. H: 1273.00 / L: 1267.20

One-Time Framing Up (S&P example from May 19, 2006

1) The first 30-minute bar opens, and the high and low are established. High: 1276.80 / Low: 1275.00

2) The second 30-minute bar opens and makes a new low by at least .50 points more than the previous 30- minute bar, and the market doesn't make a new high. We now have a chance of one-time framing down, but it's not for sure yet. H: 1275.80 / L: 1273.30

3) The third 30-minute bar opens and doesn't make a new high by more than 1.00 point. We are now onetime framing down! H: 1275.80 / L: 1272.50

4-6) The market continues to one-time frame down in bars 4-6. Traders know that selling rallies to get short will be the best chance to profit as the downtrend continues.

4) H: 1274.00 / L: 1268.20 5) H: 1270.80 / L: 1264.50 6) H: 1264.50 / L: 1261.70 The S&Ps finished the trading day in a downtrend and never stopped one-time framing down. One-Time Framing Down (S&P example from May 18, 2006)

Frequently Asked Questions about One-Time Framing:

Q. Does one-time framing, either up or down, have to start with the first bar of the day, or can it start at any bar?

A. It can start at any bar as long as it’s a swing high or a swing low (see example below) but you must remember that you need three 30-minute bars to confirm that you are one-time framing (either up or down). You can have an indication from the second 30-minute bar, but you don't know for sure until the third 30-minute bar has closed.

Q. How can one-time framing help me in my trading?

A. One-time framing is best used to help you sell rallies and buy breaks to get into profitable positions. With this technique, you have a good idea where the current trend will most likely end. Because of that, you can get into a trade with fairly low risk, by getting in the market close to where the trend will end. If the trend doesn't continue, you don't want to stay with the position.

Q. Do I have to use the technical stop (1.00 point above the high of the previous bar if I'm short, and 1.00 point below the low of the previous bar if I'm long)?

A. No, sometimes that stop will be much too far away and the risk excessive. You have two choices: 1) Don’t take the trade; 2) Use a closer stop that is less risk, by using your support and resistance numbers to find a place to put a stop order.

Q. Is there a specific technique I can use to take advantage of one-time framing?

A. Many people have asked that very question. We've put together a specific technique, and it's discussed in the next chapter.

Rules for other markets

The following are the rules for trading the one-time framing technique with other markets besides the E-Mini S&Ps

S&P 500 - Rules for One-Time Framing

The rules will be the same as for the E-Mini S&P 500.

NASDAQ 100 - Rules for One-Time Framing

You'll want to use the same rules as the S&Ps, but you'll substitute .50 point in the S&Ps for 5.00 points in the NASDAQ 100 on the second 30-minute bar. In other words, if the second 30-minute bar makes a new high by at least 5.00 points, and doesn't make a new low, you then have a chance for one-time framing in the NASDAQ 100. If each successive 30-minute bar doesn't make a new low by 5.00 points, instead of 1.00 point in the S&Ps, then the NASDAQ 100 will continue to be in an uptrend.

E-Mini NASDAQ 100 - Rules for One-Time Framing Up

The rules will be the same as for the NASDAQ 100.

T-Bonds & T-Notes - Rules for One-Time Framing

The U.S. T-bonds and T-notes trade in 1.00-point increments. Therefore, you will use substitute 1.00 point (in the S&Ps) for five points (also known as ticks) in the T-Bonds and T-Notes on the second 30-minute bar. In other words, if the second 30-minute bar makes a new high by at least five ticks and doesn't make a new low, you then have a chance for one-time framing up in the T-bonds or T-notes.