Different time frames and trading
- Thread starter cpo
- Start date
Alan Farley of Hardrightedge.com refers to trading in two different time frames as time frame error. I agree with your observation. Farley and others suggest monitoring the time frame just longer and just shorter than the one you are trading. I like this approach as it lets me see where the S/R points are .
What happened to the quote somebody was using here? It went "make em pretty". When the chart starts looking like a catscan of my brain, I switch to a different time until I find one that looks pretty.
My rule of thumb is, the longer the time, the wider the stop.
When certain points converge on both a short and long chart, I think it makes a more powerful situation.
Most switching around is just jumping out of the fire into the frying pan though.
Since so many trade the five minute chart, it's nice to keep it handy just so you can see what everybody is looking at.
To answer the question, I suppose it would make sense to keep moving down to shorter charts and try to pinpoint the entry or exit.
If I ever get a profit on the one minute chart, maybe I'll move up to 3 min just to see what it looks like. Usually by the end of the day, you need a magnifying glass to see where I got in and out.
"A 30 point down day and I got long there just to take out that little nook and cranny?"
My rule of thumb is, the longer the time, the wider the stop.
When certain points converge on both a short and long chart, I think it makes a more powerful situation.
Most switching around is just jumping out of the fire into the frying pan though.
Since so many trade the five minute chart, it's nice to keep it handy just so you can see what everybody is looking at.
To answer the question, I suppose it would make sense to keep moving down to shorter charts and try to pinpoint the entry or exit.
If I ever get a profit on the one minute chart, maybe I'll move up to 3 min just to see what it looks like. Usually by the end of the day, you need a magnifying glass to see where I got in and out.
"A 30 point down day and I got long there just to take out that little nook and cranny?"
"A 30 point down day and I got long there just to take out that little nook and cranny?"
lol. It used to bother the heck out of me when we would have a trend day and I got a just couple of points out of it but I dont think like that any more. Linda Raschke says something like " our job is to take small pieces out of the market" and I think she is right on. Just give me my 2 points consistently and I will be tickled pink.
lol. It used to bother the heck out of me when we would have a trend day and I got a just couple of points out of it but I dont think like that any more. Linda Raschke says something like " our job is to take small pieces out of the market" and I think she is right on. Just give me my 2 points consistently and I will be tickled pink.
I would appear that what makes most sense is: we have to determine the entry and exit points in the time frame we are trading. Longer or shorter time frames can be used to better assess the main trend, so that we can put the odds in our favour and pinpoint entry and exit points. Nevertheless our risk should be always calculated and taken in the time frame we are trading.
Other possibility is: what about determining the entry points in the time frame we are trading ( i.e., risk-taking) and the exit points on a major resistance or support in the longer time frame (profit-taking)? The idea would be to buy or sell when the time is ripe and liquidate the position just before everybody else.
What do you think?cpo
I agree, looking at multiple time frames can cause trouble.
I think it's because the active trend does not care much about higher time frames, so you should not.
A current example : the 3 months trend (I don't know how to call it, saying medium term means little to most of us) is down.
I remember I wrote about this rising wedge being a counter trend move a couple of weeks ago. Since then it broke down.
The current very short term trend (within 3 days, and intraday influence) is long.
Since this is a counter trend move (the short term countering the 3 month) you can make money both sides in intraday active trading.
But if you try to combine trading the 3 month down bias and intraday long, what to do ?
Contrast this with focusing on a single time frame. Then you know better what to do.
the 3 months is short, so considering the current market action, you either take profits or accumulate on the retrace (or both actually, in time).
the shorter time frame is a repeat of the bigger picture most likely : rising wedge again. if you went long you made money (even with very short term trades).
I am not saying you can't look at both time frames. Sure you can. The optimum imho is to trade both time frames but separately. That's what I do at least.
The trouble comes when within one trading strategy you mix up time frames. it can yield bad decisions because of confusion.
Stop loss are mixed up and opposite, etc.
If you are discretionnary, it's even more important to avoid confusion. If your strategy is more mechanical, then the process can be embedded in the rules and more manageable.
as usual, there are many ways to make money. but why not seek simplicity most often ?
tntneo
I think it's because the active trend does not care much about higher time frames, so you should not.
A current example : the 3 months trend (I don't know how to call it, saying medium term means little to most of us) is down.
I remember I wrote about this rising wedge being a counter trend move a couple of weeks ago. Since then it broke down.
The current very short term trend (within 3 days, and intraday influence) is long.
Since this is a counter trend move (the short term countering the 3 month) you can make money both sides in intraday active trading.
But if you try to combine trading the 3 month down bias and intraday long, what to do ?
Contrast this with focusing on a single time frame. Then you know better what to do.
the 3 months is short, so considering the current market action, you either take profits or accumulate on the retrace (or both actually, in time).
the shorter time frame is a repeat of the bigger picture most likely : rising wedge again. if you went long you made money (even with very short term trades).
I am not saying you can't look at both time frames. Sure you can. The optimum imho is to trade both time frames but separately. That's what I do at least.
The trouble comes when within one trading strategy you mix up time frames. it can yield bad decisions because of confusion.
Stop loss are mixed up and opposite, etc.
If you are discretionnary, it's even more important to avoid confusion. If your strategy is more mechanical, then the process can be embedded in the rules and more manageable.
as usual, there are many ways to make money. but why not seek simplicity most often ?
tntneo
tntneo,
One thing that I have noticed that seems to be very effective is using a larger time-frame -- perhaps a 10 minute candle chart, which "opens a signal" to a lower timeframe, perhaps a 2 minute chart, that gives a higher probability that a trade placed on the lower timeframe will be more successful from what a larger timeframe is showing.
For instance, if a 15 minute timeframe shows an oversold Stochastic, and then a 5 minute dips into an oversold level, then you could take a trade when a specific moving average turns up on the 2 minute window and place your trade accordingly.
aphie
One thing that I have noticed that seems to be very effective is using a larger time-frame -- perhaps a 10 minute candle chart, which "opens a signal" to a lower timeframe, perhaps a 2 minute chart, that gives a higher probability that a trade placed on the lower timeframe will be more successful from what a larger timeframe is showing.
For instance, if a 15 minute timeframe shows an oversold Stochastic, and then a 5 minute dips into an oversold level, then you could take a trade when a specific moving average turns up on the 2 minute window and place your trade accordingly.
aphie
Nicely done guys. This thread reminds me of the reason we visit here.
CPO summarized well. Profitseer as always I agree with you...this time about the longer the time frame the larger the stop. Concurrently, the larger the profit as well.
Using the next shorter and longer time frames as trend reference works very well. And as stated earlier, it lets you see what the traders watching those time frames are doing. For that reason I stick to the most common time frames, and use the most common indicators.
I think it is a beautiful thing to watch when a price in the 5 minute time frame (or whatever) creates a buy signal on the stochastic, then the MACD, then crosses a common moving average like the 20 sma. You can see by the volume as each one occurs and then zoom. Profit time!
Aphie and tnt I agree with both of your most recent posts. The present trend is not related to the longer trend and need not influence the trade decision. However, in agreement with what I think Aphie is saying, when the hourly trend is down, and/or the 15 minute is down, I am looking for 5 minute shorts, because it "seems" to me that I get more movement when I trade in the direction of the next longer trend(s).
As always though, the first rule is...
CPO summarized well. Profitseer as always I agree with you...this time about the longer the time frame the larger the stop. Concurrently, the larger the profit as well.
Using the next shorter and longer time frames as trend reference works very well. And as stated earlier, it lets you see what the traders watching those time frames are doing. For that reason I stick to the most common time frames, and use the most common indicators.
I think it is a beautiful thing to watch when a price in the 5 minute time frame (or whatever) creates a buy signal on the stochastic, then the MACD, then crosses a common moving average like the 20 sma. You can see by the volume as each one occurs and then zoom. Profit time!
Aphie and tnt I agree with both of your most recent posts. The present trend is not related to the longer trend and need not influence the trade decision. However, in agreement with what I think Aphie is saying, when the hourly trend is down, and/or the 15 minute is down, I am looking for 5 minute shorts, because it "seems" to me that I get more movement when I trade in the direction of the next longer trend(s).
As always though, the first rule is...