The Key to Using Multiple Time Frames

Novice traders will often utilise a single time frame to determine price points for entering the market.  The problem with this approach is that you only have one perspective on the market direction.  By using multiple time frames, you can now confirm the price action trend over several time periods to determine a higher probability of the market’s next move.

Weekly Chart

Daily Chart

If, for example, a trader was just using the daily chart, then any major pullback on that time frame may suggest a downturn in the price action and create indecision.  But the pullback to the 1900 level on the daily chart was just a minor pullback into the moving average buy zone on the weekly time frame.  For those traders trading the lower time frames, they may be going short the market on this pullback, and if they are not aware of what is happening on the higher time frame weekly chart, then they’ll be shorting into the teeth of an uptrend on the higher time frame.

Also by utilising several time frames to gauge market direction and sentiment, a trader becomes more adept at understanding the critical turning points in the price action … such as what we see here on the daily chart.  Without the weekly chart we have no idea where the pullback level will go to before commencing the uptrend again.

Even if you are a day trader working with the lower time frame minute charts, it still makes sense to have an understanding of the higher time frame trends to ensure that you are trading in the direction of the flow of money into or out of the markets as much as possible.  Trading with the momentum in the market typically produces a longer term run on the trade.  As you can see on the weekly chart, after the pullback to the 1900 level the market proceeded to run for three straight weeks continuously making higher highs and higher lows. 

The higher time frame trend is often the answer to enable a trader to stay in the trade longer if they understand trending chart structure across multiple time frames.

By Toby Genaro

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