Use of longer term charts

[bikhod]

Hello

In almost every book that I have read, the advice is to use a longer time frame for trend analysis. My favourite time frame is the daily chart, making the weekly my longer term chart. Now, if a stock has not achieved my profit target within 4 weeks, I get out. To help me, I use a 35 day, 18 day, and 9 day moving averages on my daily chart.

I am struggling with the weekly. Do I use 7 and 4 week (i.e. 35 and 18 day) or 35 and 18 week moving averages on the weekly chart? I can not get my head around using 35 and 18 as aren't they showing me a completely different picture?

Please enlighten me!

Thanks in advance ...

 

[roguetrader]

I am struggling with the weekly. Do I use 7 and 4 week (i.e. 35 and 18 day) or 35 and 18 week moving averages on the weekly chart? I can not get my head around using 35 and 18 as aren't they showing me a completely different picture?

Hi bikhod, there is no real answer to your question, since what moving averages you pay attention to is one of personal choice, you select the time period of your moving averages because they provide you with some information that you find relevant and useful for trading that particular instrument.

 

[bikhod]

Hi bikhod, there is no real answer to your question, since what moving averages you pay attention to is one of personal choice, you select the time period of your moving averages because they provide you with some information that you find relevant and useful for trading that particular instrument.

Hi

Thanks for your reply.

I am happy with my choice of moving averages because they reflect my trading time frame (18 days or 4 weeks). The 9 day MA is my fast line and the 35 day MA is my slow, overall trend line.

What I don't understand is whether to use 4 bar (i.e. 18 days) or 18 bar (i.e. 72 days) on my weekly chart. Surely they show two completely different things?

I noticed for example that charts with MACD on them use 12,26,9 regardless of whether MACD was being plotted on a daily, weekly, etc. I don't understand this because if 4 weeks is my critical time frame then surely I want the 4 bar MA on my weekly and not 18 bar to compare like with like?!?! I read somewhere that it is the number of bars that is important, not the actual number of days, weeks, etc. Is this correct?

 

[Aleph Sigma Chi]

bikhod - if you just forget about the time period you are using (days, weeks etc.) when talking about MAs and just use the MA value itself - this might help.

Using a 9, 18 & 35 period MA on your weekly and daily charts is fine. The whole point of using the different timeframes is to get exactly the different perspective that you refer to as "a completely different picture".

If your longer term chart (weekly) isn't 'in agreement' with your shorter term (daily) - great! That's why you're using the two (or more) timeframes - to either confirm or not your shorter or shortest trading timeframe position.

If your daily chart setup is saying exit or enter, what are you using the weekly for - just trend confirmation? If so, you don't need any indicators. Just check the slope.

I'd argue you don't actually need any indicators at all, ever - but that's a whole different ball game.

 

[roguetrader]

A four bar MA on a weekly chart would represent a 20 day MA, assuming we are talking about the stock market, since there are 5 trading days in the week, 1 weekly bar, therefore 4x5=20. The purpose of looking at longer term charts is to see what is going on in the bigger picture, applying the same moving average to a weekly chart as you have on your daily chart, ie a 20dma will not show you anything different with regards that MA.
An example of the use of different timeframes for confirmation.
Say I am long in a stock or Index, it is in a nice uptrend and I have a nice profit at the moment, I am above all daily averages that I use and trending nicely. I flip out to the weekly chart and observe that my stock / index is about to collide with the underside of the 50 week MA, and I note that there have been 3 other attempts to cross this MA before, all have resulted in rejection and heavy profit taking. I may want to tighten my stop here or take profits prior to this encounter. Therefore if you use and respect MA's you would apply MA's to a weekly chart that you feel are important in that timeframe. You are comparing the trend you are trading or intending to trade to the higher degree trend which takes precidence.