different time frames

[lemon]

Just wondering, why and how do you make use of checking different time frames? Dose this have anything to do with whether you are trading daily or long term?

 

[Grey1]

lemon,

There is a concept called MULTI TIME FRAME ANALYSIS where a trader gets the market direction from the longer time frame but enters on a lower time frame..

In another word you would look at the say 5 minutes while stock xyz is getting OS you then wait for the stock to get OS on a smaller time frame ( say 1 minute ) and you go long as soon as they both are OS..

This is a simple explanation of the MLT and how it works..

What you are basically doing is to try to call the top and bottom of a cycle in different time frames and take a position when the bigger picture confirms the smaller one..

Does that give you an edge ? Not sure..


We real time tested this strategy with 1,3 5, 30 minutes time frames in 1999 in alive trading room but it failed to perform ..

Reason for failure :--

The dominant time frame was moving randomly from 1 to 30 and we did not know which one to take notice of..

Perhaps more experienced traders would like to make a comment on this issue..

NO BACK TESTED RESULTS PLEASE>>. THEY MEAN NOTHING ..

 

[sandpiper]

lemon,

Have a look at:

http://www.fibonaccitrader.com/journal_issue1/FTJ1.pdf

And after youv'e read that, there are another 14 journals in the series. All of them, to a greater or lesser extent, feature multiple time-frame analysis.

 

[lemon]

Grey1,

Thanks a lot for the reply.

So basically I enter a position when the shorter one confirms the longer one. Then how about exit? Using the same theory? Also, how many different time frames I should use and what are some of the common ones? Does this depend on the volatility of the stock?

When you say "The dominant time frame was moving randomly from 1 to 30", does this mean that there's no confirmation? It is a choppy market?

By the way, what does "OS" stand for?

Regards,
Lemon

 

[Skimbleshanks]

I trade using two time frames - 5 minute and 10 minute. The 10 minute gives me the overall picture of the market, and I use the 5 minute to time my entries and exits.

For momentum trades, often a good entry is when a bar makes a higher high on BOTH the 5 minute and 10 minute simultaneously.

I'm far too lazy to use stops, so I just use mental stops based on the lows on the 10 minute bars. But if you're new to this game that I hope that you will always use stops.

 

[lemon]

Great stuff! Thanks!

lemon,

Have a look at:

http://www.fibonaccitrader.com/journal_issue1/FTJ1.pdf

And after youv'e read that, there are another 14 journals in the series. All of them, to a greater or lesser extent, feature multiple time-frame analysis.

 

[Grey1]

lemon

Quote “So basically I enter a position when the shorter one confirms the longer one. Then how about exit? Using the same theory? “,

Yes you exit on the same basis
Quote “ how many different time frames I should use and what are some of the common ones “

Depends on your position size .. if you are a scalper then 3 and 1 minute .. if you looking for more gain because your pos size is smaller then try the 30 minutes..

Quote “When you say "The dominant time frame was moving randomly from 1 to 30", does this mean that there's no confirmation? It is a choppy market? “

No it means no one can tell you what is the best time frame for that particular day or stock as it moves randomly across various time frames.

Quote “By the way, what does "OS" stand for? “

OS means OVERSOLD.

regards

 

[lemon]

Thanks, Skimbleshanks.

I've looked up for "momentum traders", which focus on stocks that are moving significantly in one direction on high volume. Do you recommend this type of trading for a beginner? What other types are there to choose from?

Also, how do you mean by using stops? Using existing computer analysis signals, ex. BreakEven stop? Or using things such as "support and resistance"?

I trade using two time frames - 5 minute and 10 minute. The 10 minute gives me the overall picture of the market, and I use the 5 minute to time my entries and exits.

For momentum trades, often a good entry is when a bar makes a higher high on BOTH the 5 minute and 10 minute simultaneously.

I'm far too lazy to use stops, so I just use mental stops based on the lows on the 10 minute bars. But if you're new to this game that I hope that you will always use stops.

 

[BBB]

One way I use a longer time frame is in expectancy.

If a bar gaps open past the close, then there is a good chance that price will at some point, revert back to the previous close. This is especially true in consolidated markets or over extended trends. If price closes within the previous close in a trend, then the expectancy is for price to again gravitate towards the previous close continuing the trend.

Although this maybe better observed on daily & weekly charts upwards, the expectancy can be traded well on the intraday charts.

Never 'backtested' it, but it's a phenomena that has a significant edge that yields $$$$ when the trade is also managed properly.

 

[Skimbleshanks]

There are as many ways of trading as there are whales in the sea - and as a newbie you have the hardest task of all; finding something which suits your style, personality, and emotions.

As a beginner I suggest you identify a group of stocks first. The easiest ones are US stocks with high-ish daily volume (Nasdaq 100 stocks for example). Then remove any which are below, say, $5 or $10 per share. You then have a universe or basket of stocks to watch.

Then spend a long time (weeks and weeks if not months and months) looking at the way the prices form. Research one chart pattern, and look for it in these charts. Get used to seeing how it forms (looking back historically is OK to start with, but it's more important that you recognise a pattern as it is forming, not after it has formed).

As time goes on you will slowly get a grasp for the waves that the stock price makes as it goes up in waves and down in waves. Measure the waves, so that you can work out the average amount each stock pulls back (retraces).

The tops and bottoms of these waves are support and resistance, and you'll soon realise that there are all sorts of waves all interacting with one another. Look for huge waves on the weekly chart, big waves on the daily chart, waves on the 60 minute chart, smaller waves on the 10 minute chart, and mini waves on the 5 minute.

Once you understand the basics of how prices move, then you are well on the way to getting yourself ready to make your first trade. Don't rush the early stages, because these really are the most important. There's lots of stuff to read on these boards, but do try not to distract yourself from looking at the price by using indicators, colourful lines, etc.

 

[lemon]

Grey1,

I'm a little confused.

>> "Depends on your position size .. if you are a scalper then 3 and 1 minute .. if you looking for more gain because your pos size is smaller then try the 30 minutes.. "

So the smaller the position size, the shorter time frames I should be using?


Regards

 

[lemon]

Thank you so much for the info.
However, why not backtest it thou?

One way I use a longer time frame is in expectancy.

If a bar gaps open past the close, then there is a good chance that price will at some point, revert back to the previous close. This is especially true in consolidated markets or over extended trends. If price closes within the previous close in a trend, then the expectancy is for price to again gravitate towards the previous close continuing the trend.

Although this maybe better observed on daily & weekly charts upwards, the expectancy can be traded well on the intraday charts.

Never 'backtested' it, but it's a phenomena that has a significant edge that yields $$$$ when the trade is also managed properly.

 

[lemon]

Thanks for the advice.

I'm planning on QQQ, since it's pretty consistent with the market. Also, I might try some group stock. No big wins, but won't be so much risk neither. What do you think? Any other ones I should give it a try?

And yes, I do need to get myself to be familiar with the patterns forming in the charts. Do you have any recommendations for the learning materials I could read up?

Thanks again.

There are as many ways of trading as there are whales in the sea - and as a newbie you have the hardest task of all; finding something which suits your style, personality, and emotions.

As a beginner I suggest you identify a group of stocks first. The easiest ones are US stocks with high-ish daily volume (Nasdaq 100 stocks for example). Then remove any which are below, say, $5 or $10 per share. You then have a universe or basket of stocks to watch.

Then spend a long time (weeks and weeks if not months and months) looking at the way the prices form. Research one chart pattern, and look for it in these charts. Get used to seeing how it forms (looking back historically is OK to start with, but it's more important that you recognise a pattern as it is forming, not after it has formed).

As time goes on you will slowly get a grasp for the waves that the stock price makes as it goes up in waves and down in waves. Measure the waves, so that you can work out the average amount each stock pulls back (retraces).

The tops and bottoms of these waves are support and resistance, and you'll soon realise that there are all sorts of waves all interacting with one another. Look for huge waves on the weekly chart, big waves on the daily chart, waves on the 60 minute chart, smaller waves on the 10 minute chart, and mini waves on the 5 minute.

Once you understand the basics of how prices move, then you are well on the way to getting yourself ready to make your first trade. Don't rush the early stages, because these really are the most important. There's lots of stuff to read on these boards, but do try not to distract yourself from looking at the price by using indicators, colourful lines, etc.

 

[Skimbleshanks]

lemon:

There's an excellent book, IMO, called 'How Charts Can Help You in the Stock Market' by William L Jiler, and published by Fraser Publishing Company. It's inexpensive.

A word of warning though. The book was written in 1962, and has been reprinted at least 11 times since. The charts in it are old-fashioned looking, and only daily bars, and there is nothing in there on indicators BUT the copy and diagrams are worth their weight in gold. The book concentrates on patterns which appear in all timeframes, so you'll see the patterns on 5 min and 10 min charts as well as end of day bars.

There are far too many patterns in the book for you to become knowledgeable on them all, so you need to concentrate on just a couple of them and know them really well - this is all you need. I concentrate on double bottoms and head & shoulders because these appear at the start/end of trends, and picking tops and bottoms is a personal favourite of mine because the risk is tiny.

You'll probably be quite disappointed at first if you get the book, because first impressions are not good - but all the simple basics are there, and more. And it's only ever the simple basics which you need - so many people forget this.

In case you're wondering on my recommended read, I have 60+ trading books (one bookcase full of them) and Jiler remains my favourite.

 

[BBB]

Lemon - Why don't I back test?

What for? Markets are changing all the time, evolving as new participants enter with new ideas and methods. Just because something has worked in history, doesn't mean it will work in the future. You can see this for your self by simply looking back at the CHARACTER of ANY market over a period of years. Sometimes you will see it trend, sometimes stay within a range for years. When it does trend, sometimes it will step up in the trend, sometimes it will swing wildly as the trend progresses. etc etc etc. So if I have backtested my MACD with CCI or whatever, while the results look good now, they weren't so hot 5 years ago when the character was different. What about tomorrow? That's anyone's guess.

Thats why you've got to find out how price behaves and the implications and PROBABILITIES of x happening tomorrow if we have had a strong close yesterday? What is the psychology of the market? If there is a strong close today, do you think that shows a lot of people are willing to hold overnight? If so, can we expect a weak or strong open tomorrow? This stuff is based on truth as its based on human emotion - and that stuff NEVER changes - even though the markets do! I'v no need to back test it because its based on human emotion - the most reliable activity in nature/the world.

Some say history repeats itself. Not in the markets - you will NEVER see exactly the same formation crop up twice. Human nature DOES repeat itself though, and we see that in the markets every day.

Try and figure out the reasons why price moves, where most people will have their orders placed, who are the participants in the market and what are they trying to achieve and where. This isn't easy, and it wont come overnight. Once you have done this however, you will be able to trade properly without indicators, fib numbers, elliot THEORY, blah blah blah.

Your next task (some would say the first, but you've got to start somewhere) is to figure out risk management and money management. Next you put it all together, realise your still losing, and figure out you've got to cut the losses to win. That involves trade management......personal management.....

 

[Grey1]

Well said BBB,,,

 

[neil]

No grail here

Well said BBB,,,

I second that. It takes hard work, observation, patience and experiment to get anywhere. Somebody else's method will not do it for you.

Many people will find they study all sorts of tomes on trading but eventually come full circle to realise that Keep It Simple is best.

But this simplicity masks a long time spent studying and learning whilst accumulating battle scars along the way.

 

[lemon]

Thank you all for your detailed replies. They're REALLY helpful. If I have more questions, I will surly bother you guys again.