Trading Multiple Time Frames
How to Read Charts Through Different Time Periods
Looking at multiple time frames can give you a better idea of what is happening with a stock. For swing trading, we can break this down into 4 time periods. The daily, weekly, 60 minute, and 5 minute time frames.
The Daily Chart
The Charting Workspace
Swing Traders use the daily time frame to make their buy and sell decisions. When we run our scans, we are running them off of the daily chart. This is where we will find our trading opportunities.
However, we would still like to get an idea what the longer term trend looks like. This is where the weekly chart comes in.
The Weekly Chart
Birds Eye View
Think of the weekly chart as the time frame that allows you to step back and get a look at the longer term trend. You can only fit so much data on the daily chart so it is hard to see what is really going on with a stock.
On the weekly chart, you want to see that the stock is in an uptrend and if there are any significant chart patterns. Many investors and institutional traders use this time frame to make buy and sell decisions. So ask yourself, "If I were them, would I want to buy the stock now?"
The 60 Minute Chart
Binocular View
Think of the 60 minute chart (hourly) like you were getting out of pair of binoculars and analyzing what is going on with the individual candles on the daily chart. When you buy pullbacks off the daily with consecutive lower highs (long positions), you will see that the stock is in a downtrend on the 60 minute chart.
You are looking for a break of that trendline in this time frame.
When you say, "I'll buy when the stock trades over the previous high.", what you are really doing is buying that trendline break on the 60 minute chart. After that happens, then it is time for entry...
The 5 Minute Chart
Microscope View
This is where we will get our entry. So far, we have found a great setup on the daily chart. We checked the weekly for chart patterns and to make sure that the stock is in an uptrend. We zoomed in using the 60 minute chart and watched for a break of that trendline.
We have already made our decision that we are going to buy the stock.
The five minute time frame is used to buy the stock at the best possible price. You really don't need to spend a whole lot of time analyzing this chart. Just look for the stock pull back to a support area (on the long side) to get your entry price. Simple.
Trading Tips
- Each time frame affects the other. A news event affects the intraday (5 minute) chart. This affects the hourly chart, which affects the daily chart, which affects the weekly chart.
- You may be able get a better entry with a tighter stop loss order using the 60 minute chart rather than the daily chart.
- Look for support and resistance, chart patterns, and candlestick patterns in all time frames.
- Use the 200 SMA in all time frames.
Analyzing different multiple time frames can improve your success as a swing trader. However, you will rarely find a stock the looks absolutely perfect on the weekly, daily, and intraday charts. Your main goal is to identify support and resistance areas that could affect the stock in that time frame.
What about other time frames? Some traders use the 15 minute chart. Others use monthly charts. Market Club even uses quarterly charts!
The important thing to remember is to pick your main time period then look at a time frame above it and a time frame below it. The lower time frame tells you what is happening now and the higher time frame tells you what could happen in the future.
