Learn to ride the waves of success with the Three Waves Trading Technique. Here’s a chapter taken directly from my new book:
The Three Waves Trading (TWT) Technique is our dynamic trading method that harnesses the power of three time frames: weekly, two-day, and 195-minute (half-day) charts. We use these time frames to identify and track trends as they unfold. By analyzing Heiken-Ashi candlesticks, volume, and trend lines simultaneously on a single display, we gain valuable insights into the market and can learn to confidently navigate our way to successful trades.
The fundamental principle of the TWT Technique revolves around monitoring the inception and progression of a price move across the three time frames. This technique empowers us to gauge the strength of a move, spot potential fake-outs, and avoid falling into traps. By observing how a move initiates on the 195-minute chart, advances into the two-day chart, and ultimately impacts the weekly chart, we can assess the power and sustainability of the trend. Volume, the vertical rectangles at the bottom of each time frame chart, further confirms the strength of the move, while trend lines offer visual clarity on the speed and intensity of price changes.
Diagram 14. The EFT SPY on the Three Wave Trading Chart.
To implement the TWT Technique, traders overlay the same weekly trend line on each time frame, ensuring consistency and clarity across the charts. The weekly trend line becomes a crucial tool for evaluating overall market strength or weakness.
Now, let’s break down a typical trade using the TWT Technique: Firstly, we monitor the weekly chart for a potential reversal of the trend. A reversal occurs when the weekly Heiken-Ashi candlestick changes color, transitioning from green (indicating a bullish or upward price movement) to red (indicating a bearish or downward price movement) or vice versa. Once a potential reversal is identified, we focus on establishing a new trend line and carefully assess the speed and magnitude of the trend change. It is generally advisable to allow the change to develop over the week of the reversal and consider entering a trade on Friday afternoon.
Diagram 15. TWT Bearish Reversal (up to down).
Diagram 16. TWT Bullish Reversal (down to up).
Although the concept may seem straightforward, implementing the TWT Technique can often be more complex. Reversals may initially exhibit strength and then weaken or undergo erratic movements. The quality of the chart leading up to the trend change significantly influences trade viability. A “quality chart” is one that has shown a discernible direction for a sufficient period, enabling traders to capture reasonable profits. Through practice and diligent chart monitoring, traders can develop the skills and intuition required to identify favorable trading opportunities.
It is important to note that the TWT Technique requires daily monitoring of stocks/ETFs on a trader’s watchlist. By actively tracking changes in trends, candlestick patterns, and volume, you can learn to spot genuine moves and consider initiating trades. Once a trade is entered, continuous monitoring is necessary to ensure the move continues in the desired direction. We always utilize GTC (good-till-canceled) sell orders to set profit levels and plan their exit strategy (discussed more in Chapter 15).
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How to Set Up Our Three Time Frame Chart on TradingView: https://youtu.be/wLwTnrtAOTA
