The Time Element – Choosing the Correct Timeframe

Every trader knows that using multiple timeframes can provide different perspectives on the market, and provide key information on the lead-lag relationship. Small timeframes lead larger ones, and larger ones drive the smaller ones. Understanding the inter-play is crucial.

The Time Element - Choosing the Correct Timeframe

The Time Element – Choosing the Correct Timeframe

Since trends exist on different timeframes, it makes sense to analyse at least two timeframes. For example, if one’s main timeframe is the daily chart, one can consult the weekly chart to see the big picture. This allows investors to analyze a particular trend against the perspective of the next higher timeframe.

If one is using swing counts, a lower/higher high/low in the weekly and monthly charts can provide perspectives not seen in daily charts. Long-term trendlines may be clearer, and more obvious/easily visible. Certain price patterns are more visible on long-term charts (key reversals, triangles on weekly), as well as long -term support and resistance levels.

A trend change signal on the short-term (daily) may only be a retracement in the long-term (weekly) chart. On the other hand, a trend change signal in the long-term chart may be a substantial move in the short-term even though a short-term move may seem overdone. Hence, an overdone breakout on the short-term trend may actually be the start of a major breakout if the long-term chart is still on an uptrend.

Divergence signals are also more obvious when timeframe is compressed, for example a price-volume divergence is more obvious on the weekly compared to the daily. Divergences on the larger timeframes also point to larger moves, and could herald major reversals.

In conclusion, using multiple timeframes allows one to better identify trends, and more precisely pinpoint entries and exits by zooming in and zooming out from the initial point of reference. This also allows one to better manage risk in line with one’s time horizon and investment timeframe.

The Dual Timeframe Technique (NEW!)

Cheers
Spencer
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Spencer Li is a trader, investor & entrepreneur who achieved financial freedom at 27 (2013), having to date accumulated a diversified portfolio of properties, stocks, REITs, and 10+ businesses across different industries. As a professional trader, he has over 10 years of market experience, and has been featured on more than 20 occasions in the media.

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