I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the ...
How to Trade Multiple Time Frames
11/17/2012 7:00 am EST
Learn how to use several time frames to get money-making trading signals. Corey Rosenbloom also explains how he uses confirmation of indicators to spot great trades.
My guest today is Corey Rosenbloom and we are talking about integrating two timeframes into your decision making with your trading, so Corey why two timeframes? Why is it important to look at the two different ones for making decisions?
Sure, just try looking at one timeframe, so the daily chart only are going to miss the salient details or more information that can be gleaned from the lower frames, even something as simple as an hourly chart or a 30-minute chart or say a swing trader. A lot of times lower timeframes can be used to time entries better. For example, if the daily chart shows a support level, say $100 for example and the stock isn’t moving down toward that and it is in an uptrend, a trader wishes to put on a swing traded position. Well why can’t you just wait for the market to come to that exact price or they can turn to a lower timeframe, 30-minute, maybe a 15-minute and see what is happening. Maybe there are positive divergences. Maybe there are volume bars that are picking up. Maybe there are any other kind of indicators, overbought stochastics, so whatever the indicators that they are using in their strategies may be adding buy signals into the higher timeframe level.
All right, you are talking about positive divergences; what do you mean by that?
Right, a positive divergence, say a momentum, is looking at when momentum makes a new low and price makes a new low that is a sign of confirmation. We would say when a price and momentum make a low together that should lead to further price lows to come, but a non-confirmation occurs when price makes a new low, especially in a pronounced or a longer term downtrend than what has been going on for quite some time, and then the momentum oscillator, however, the indicator they are using are market internals, if it is the S&P, the Dow, etc.
Like that magazine.
Yes, exactly, there is an indicator called momentum RSI, even stochastics made divergences or rate of change, anything else that can be called a momentum oscillator for confirmation, non-confirmation. If that indicator makes a higher low relative to its prior low than that is a divergence and it is a sign of non-confirmation. That trend, especially a longer term or a mature trend may be coming to an end and a reversal may be near.
All right, so in some sense that could be a leading indicator for you. You have got higher momentum, but a lower price, you would expect the price to turn around at some point.
Especially to a higher timeframe support level, absolutely; it could even be a complex level Fibonacci, a trend line, or simply a price level, round numbers work as well. So it is just another way to integrate additional information and timing signals into higher frames.
So what has more weight? If you are trading in hourly and a 15-minute or say a daily and an hourly, is the higher timeframe, the signals you see there, do you give them more weight than the shorter timeframe?
Absolutely, especially looking at the weekly chart, it is going to be higher and the monthly even for that matter too. A lot of swing traders don’t take decisions or take signals off of monthly charts; a few do off of weekly, but most focus on the daily, and so the higher frames will dictate. That is the supply, demand and balance. A trend simply stated is an imbalance in supply and demand that occurs over time. So if there is a higher timeframe trend, a higher timeframe support level on a weekly chart more traders, more funds, more participants are going to take action at that level, putting on new positions, taking off old positions, or in the event that that support level breaks or fails to hold, will be initiating new positions, say shorts, so those will bring in more traders of higher timeframes. Lower timeframe traders tend to be more active, but there is the current that takes place in the higher frame that almost overrules that. So for me, it is looking at signals, clarity and what other kind of signals from the lower frames into higher frame levels and it gets more confluence of the indicators.
So if you have something on a daily timeframe that is that support and on an hourly timeframe that is a support; that is ideal.
Especially if it’s a Fibonacci, an hourly chart, and also a higher timeframe support level. The more factors we can put in our favor in putting on trades with the tighter stops tends to be better. It doesn’t guarantee a successful outcome, but it gives us more clarity and more confidence to put the trade on.
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