Multiple time frames

Stock Scalpers LLC. 
Multiple Time Frames

April 04, 2020

Advantages of Using Multiple Time Frames

There is almost a universal division among traders as to which time frames they prefer to look at. There are the short, middle and long-term perspectives. A short-term day trader might focus heavily on the 1 and 5-minute charts while the sweet spot for swing traders are the 30 and 60-minute charts. Long term investors often focus on the daily, weekly and monthly charts. 

While all of these methods work and traders do quite well, it is far from beneficial to become too narrowly focused. Each time frame provides a different perspective on the market and a trader can make money at each level. Would it not make sense to use all available time frames to increase your effectiveness as a trader?

    A trader has to choose which time frame best fits their individual style of trading. There are countless reasons to prefer a given time horizon. Some traders enjoy the ability to control risk that comes from a shorter time frame, while longer term traders care far less about the intraday market changes. Whatever the case, it is important to make use of all the tools at our disposal.

Widening Horizons

    I can literally pinpoint the increase in trading profitability that came from expanding my market view with multiple time frames. I have always specialized in short-term day trading and for years I primarily focused on the 5-minute chart. The daily charts were part of my screening criteria, but once I found a stock I went straight to the 5-minute time frame. The 1-minute chart does not display enough information and the daily and weekly time frames were entirely too cumbersome. 

    After awhile, while reviewing my trades it became apparent I wasn't working with good support and resistance levels. I was getting stopped out of good trades and I was selling too early and not letting my runners run! Once I widened my time frames I was able to see the market I was trading in much more clearly. 

By expanding the time frames out traders can get a better picture of the major direction of trend and where the support/resistance levels are. This information alone gives the trader a much higher probability of a profitable trade. Knowing the market's direction provides a good idea of what direction to be trading. If the daily and weekly trend is up, then going long on a trade has a higher probability of success. Once the trend is established, the shorter time frames may be used to find and time your trades. The 60-minute chart can direct the middle area as it indicates 2-5 day moves. The shorter, 1, 5 and 10-minute charts can then be used to minimize risk and find the perfect entry and exit points.
   

Monitoring the Trade

Once a trade is made, no matter how long the trade is intended to be held, the trader must monitor the move. This is best done on a higher level than where they normally trade. It is far easier to see moves more accurately with a longer perspective. The further out from the trading time frame the more apparent support and resistance levels become. 

    Since I primarily trade in the 5-minute time frame I use the 60-minute chart to monitor. When I am scalping in the 1-minute frame I will use the 10 or 30-minute frames to track the trade. Longer term traders may have to go all the way out to weekly charts to accurately judge the market. 

    With a better understanding of a stock's support levels traders can more precisely place their stop loss. The wider the view the better your stop loss, but it will cost you more if it gets it!

Holding On to Runners

    If you’ve been trading more than a few weeks then you’ve heard somebody say the secret is to “cut losers and hold winners.” Traders often get excited when they’re in the money and they get out far too soon. The best way to hold runners is to make use of longer time frames. Longer time frames allow a trader to see when the market still has room to move. The smaller the time frame the less of the market a trader is actually viewing. 

    LET GOOD TRADES GROW!

Confirm Trades With Different Time Frames

    A great method of utilizing varying time frames to increase trade probability and profitability is to use the same trade signals/methods across multiple charts. 

    When a trader gets a buy signal in their long range time frame (weekly, daily or 60-minute) they can use that as a catalyst to begin looking for the same conditions on shorter time frames.  

Let's look at some charts: 


First, you can see Microsoft on three expanding time frames. Next, let's look at each individually:

MSFT Daily Chart:



MSFT 1-hour Chart: 



MSFT 5-minute Chart:


    If a trader begins by scanning the daily chart and finds a simple moving average crossover system, like any circled in yellow, this gives them the signal to make short term trades in the long direction. From there the trader can progress to the next time frame and follow the same signals to buy in the long direction. Once the trader is in the 5-minute chart he has a higher trade probability in the long direction as it has been verified with consecutively more data. In the 5-minute chart the trader can then use every cross up as a buy signal and every cross down as a sell sign. (NOT a sign to short as we are still in an uptrend according to our higher time frames)
    Even better, once the trader has the trade narrowed down to the 5-minute, they can buy and sell EVERY time the signal appears until the trade loses probability on the larger time frames.

Working In Reverse

In addition to confirming trades as previously outlined, a trader can use multiple time frames to scale into a trade. 

Using this method a trader would put a portion of their normal position in when they receive a trade signal on a short time frame. If your trade works, you can then move to the next larger time frame and trade off the same signal. 

By doing this across multiple time frames a trader can build into a position. This works amazingly well for breakout uptrends. The breakout will start at the shortest time frame and will then build into the longer time frames. It can take multiple days to see a breakout on a long term chart, and this method will allow traders to be on the bottom end of the uptrend!
    Bonus: By scaling into a trade from the shortest time frame, traders protect themselves from losing the entirety of their position. If the trader is wrong they only lose what they invested in the failed time frames. 

BECOME MORE PROFITABLE 

Become a better trader and utilize multiple time frames to increase profitability. Using multiple time frames will allow traders to:

Become more in tune with the market overall.

See trends more clearly

Time trades more efficiently

Find the right support and resistance levels

HOLD ON TO WINNERS

Scale into trades

See profit points more consistently. 

Monitor trades with greater probability.

Confirm trades across frames to increase success rates. 

If these things are happening you should try scanning the market with multiple time frames:

Not understanding important market levels. 

Trading against momentum.

Not holding onto winners.

Not cutting losers loose. 

Getting shaken out of a trade only to see it rise later.