Trading on the 89-Tick Chart

04/01/2013 9:38 am EST

Focus: TOOLS

Larry Gaines

Founder and CEO, PowerCycleTrading.com

Larry Gaines talks about how trading on the 89-tick chart helps him find good trading opportunities, especially in the crude oil market.

My guest today is Larry Gaines.  We're talking about various timeframes that traders can use and why he uses certain timeframes.  Larry you've mentioned in the past about an 89 tick chart.  Why do you use that?

Tim, I'm kind of a trading nerd, so I dissect everything and I look over a lot of different charts and timeframes, and I've been doing this for so long that you'll spot things, you'll make observations, and you'll look at it and see if it works here or works there.  What we've noticed, and this also comes from our virtual trading room at options on the open power cycle trading, that we have this virtual interactive trading room and we have our members contribute a lot. 

Sometimes we'll have somebody that might use a different timeframe with the same trading model, the power cycle trading model and they'll get certain results, and sometimes they are really good results.  When I hear something like that then I'll start researching it as well.  We were trading crude oil. We had one member that was using the system, the power cycle trading model just for crude oil, and our normal timeframes that we use, we use a multiple timeframes because it gives us a confirming timeframe where we can, let's say if we use too short of a timeframe, like an 89 tick, the markets are going to go up and down, you're going to get in and out of a lot of trades fast, so it can be good and bad. 

You could over trade and then you can have a lot of trades that go against you.  What we want to do is smooth things out.  We'll go with some longer term timeframes, as well as a short-term.  We'll overlap and interlay those together, and then we come out with one directional trade, which we get in at a better entry level where we don't have an equity drawdown.  The 89 tick actually came about from this one member.  He was using it for crude, along with some other timeframes that we use, and it was working really well with him.  That's just one time interval.

So on the power cycle trading method are you back testing to find out what works as well incorporating that in the model?

It's a system that I've back tested from just my experience, and it's actually something we're working on now to fully automate.  It's a work in progress.

Alright, when you do these multiple timeframes, are you looking for all five to line up at once and kind of point to the same price area?

Exactly, exactly.  What we'll do, usually we'll have a minimum of three timeframes, and what we'll do is we'll take, for example for our intraday trading, we'll take like a five minute, a two minute, a 400 tick, a 133, or an 89, so we'll have those five different timeframes and we'll utilize those.  When you have a market that's say trending in one direction really strong up or down, you don't want to rely on just one short timeframe because you're going to get maybe stuck not in a trade or you're going to get stuck in a trade too early.  That's when it really comes in handy to use some other longer term time intervals along with your short time intervals to help you get a better entry.