The TDDT Method in a Nutshell
The TDDT approach is very detailed, but following is a basic Step-by-Step. If you’re NEW to trading, or new to day-trading – PAPER-TRADE FIRST to get comfortable with the process.
- Put together a portfolio – or several portfolios – of tickers you like to trade. Leveraged instruments are best – Futures, Forex, and “optionable” ETF / stocks. We trade a core portfolio of 25 – 40 tickers.
- Every day before the market opens (or after the close,) scan your portfolio(s) using DAILY charts. Include a short-period MA (moving average) indicator. Flag tickers where the MA LINE IS SLOPING. This should take just a couple minutes. We use an 8-period exponential MA – feel free to experiment. We use Excel, with a column flagging each ticker as UP or DOWN or (X or some other flag for “no direction.”)
- Scrub out just the UP tickers and the DOWN tickers. We don’t care about the “no direction” tickers.
- Now – just before the market open – check HOURLY charts for those UP and DOWN tickers. Flag the ones where HOURLY direction and DAILY direction are the same, whether UP or DOWN.
- Now you’ve got TWO sub-portfolios – one UP (both DAILY and HOURLY) and one DOWN (both DAILY and HOURLY.)
- IMPORTANT NOTE – Hourly chart direction can change at any time during the day. It’s best to check the 2 lists every hour or two during the trading day – e.g. just after hourly bars print – to confirm that each hourly slope still agrees with daily bias. If one changes – DON’T TRADE IT unless the slope changes back into agreement with the daily slope.
- During the trading day, check 5-minute charts for your two lists often (every 10 – 15 minutes, or even every 5.) Set up a system where you can do this quickly and easily. A grid or checkerboard setup is great – you can scan 12 (4x3) or 16 (4x4) or more at a glance, if your brokerage / charting software supports that.) At TDDT we set up 2 grids - one for the UP list and one for the DOWN list.
- You’re looking for 5-minute chart slopes in the SAME DIRECTION as the prevailing Daily / Hourly slopes – when ALL 3 TIME FRAMES ARE IN ALIGNMENT! That’s when you want to enter a trade.
- Note on this next step: it's best to enter soon after the 5 min. chart turns in your pre-determined direction. Most markets are prone to frequent switchbacks, and if you jump in midway along a sloping line it could reverse at any time.
- A slope right after the market open is often a pretty good play. If it opens in the opposite direction or sideways, the first UP switchback of the day can be even better.
- Check your UP portfolio, perhaps every 10 or 15 min., watching for tickers to turn UP. WAIT UNTIL THE MA LINE BEGINS TO SLOPE UP – with at least 1 full bar printed and the MA line sloped in the new direction BEFORE the printed bar.
- Before buying – CONFIRM that all 3 timeframes are in agreement in terms of MA slope!
- Now enter the trade – buy the underlying or buy “call” options. For best results, use a BUY LIMIT order with price near the 5-minute MA line (or use a MARKET order.) If using a BUY Limit order, don’t forget to compensate for the Bid/Ask spread when setting your entry price.
- Do the same with your DOWN portfolio looking for DOWN open / switchbacks on the 5-minute chart. Sell the underlying or buy “put” options to enter.
- EXIT on a 5-minute chart reversal, or use preset stops / limit exits.
Note to new traders: if any of this language is confusing or unfamiliar to you, it's critical that you take time to educate yourself before putting real money into any trades. There are plenty of resources available to learn the basics. We hope you'll bookmark TDDT and come back when you're ready. Trading is a complicated business, and can be very costly if you jump in before being fully informed. Most successful traders have been at it for years. We assume that our readers are at least familiar with the fundamentals of trading.
NOTICE – this is an extremely simplified version of our system. Novice traders should trade these ideas using a paper-trade account only. Risk management, position sizing, detailed entry and exit rules and other factors are essential to trading success. EXPERIENCE is also critical. Novice traders should learn how to trade using “virtual” money in a paper-trading environment.