Quote from Laissez Faire:
Hello Rashid,
This is a question that invites many different answers as we have seen already. Each person asked thinks that his answer is the correct one and he may very well be right as there are many ways to skin a cat.
Further, your question is general and not very specific. Generally, general questions inspire general answers, and thus are not generally very useful in order to handle a specific problem such as the one you are facing.
However, by the charts you listed, one may assume that your methodology and time frame is day trading and if my memory serves me correctly you are trading one of the equity indices. NQ?
First, in order to choose a time frame, you need to decide how you want to trade and what it is you want to take out of the market on any given day. There is a world of difference between trading from a fast tick chart and a 5-minute chart.
Personally, I decided that what I wanted is to capture one or several of the larger swings that the market offers on a daily basis and move away from scalping. Why? Far more profit potential, less trading and less stress. For me, I find that the 5-minute chart captures these swings fairly well, so that is my main chart. I consult the 1-minute chart to look inside the bars for clues or to improve my entries/exits, but it is a secondary chart and may frequently provide fake signals, especially if one don`t know how to read it. For example, you can`t take a signal on the 5-minute and then exit too early on a retrace on the 1-minute. But if used correctly, the 1-minute will help you.
Actually, the 1-minute chart is a must during large moves, as the 5-minute bars become "too large", but generally the 5-minute alone can work just fine.
I then use the 5-minute/1-minute and that only during the trading day. Since I trade the ES, I also follow what NQ and YM is doing, but that may be a source of conflict as well. I rarely if ever bother looking at the higher time frames during the actual trading day. Only if I`m bored, but I prefer trolling at ET.
Actually, I don`t even use the higher time frames that much prior to the trading day either, as I find that most of the levels I need are visible on the 5-minute chart.
Prior day`s high/low/50%, the prior day`s pivot point and related levels, the current day`s evolving 50% level, gap fills, the open price, the close price of the prior day, overnight high/low/50%, etc.
If you trade the equity indices, you should weigh the cash session from 09:30-04:00 far more, since that is when the cash market is trading. Actually, I encourage you to try plotting only those hours on your chart. That will easily reveal the gaps as well.
What do you do if there is an uptrend overnight, but it looks like a down trend after open? It may be a source of further confusion. Try to use the overnight session high/low as references, but weigh the action a little less.
With a real 24-hour market such as FX, it is a completely different matter since that is an actual traded product and not a derivative of a cash index.
The obvious problem with using multiple time frames is that it is likely to make you very confused.
I didn`t consult my higher time frames after the close yesterday, but the spike above 30 yesterday surely looks like a fake breakout on higher time frames, yes? Still, it was a very good trade on the 5-minute chart. So, stick to a chart, learn it`s patterns and trade it.
This assumes day trading. If you are looking to swing trade, I would of course answer differently.
I hope that gave you some ideas. Try it out for yourself and make your own conclusions.
Regards,
LF
