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Article Contributed by Umashankar Galla
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Trading Using Multiple Time Frames
Why do we need to Trade Using Multiple Timeframes? To
improve the efficiency of our trading strategy. We see the major
Trend using a higher time frame than what we intend to use & a
lower Time frame to enter a trade. Say we want to trade using
the Daily Charts. We take the Weekly charts to see the major
trend. Suppose it's an uptrend in a Weekly chart. We will tend
to trade only long positions. We will use entries in the daily
charts to enter long positions only. When sell signals are
generated we will just exit our long positions. I.e. we don't
short sell. Suppose it's a downtrend in a Weekly chart. We will
tend to trade only short positions. We will use a entries in the
daily charts to enter short positions only. When buy signals are
generated we will just exit our short positions. I.e. we don't
enter long positions. Now that we are using two timeframes. Now
coming to timing the entry of trades or adding additional
positions. (Pyramiding) We can further use a Hourly chart to
time our entries. Suppose the weekly & daily charts are in a
uptrend. We will enter a long position or an additional long
position when a hourly chart gives us a buy signal. Suppose the
weekly & daily charts are in a downtrend. We will enter a short
position or an additional short position when a hourly chart
gives us a sell signal. This timeframe would not be used to exit
the trades. It's solely to improve the timing for entry. For
exits we would use the signals generated in the daily charts.
Using multiple time frames to trade. We take three charts
of the same security. First is the weekly chart. Next chart is
the daily chart. Third chart is the hourly chart. We will now
use the daily chart to trade. We check the weekly chart for the
weekly trend. Lest assume the weekly trend is up. So based on
this information we will just trade long positions in the daily
chart. We look for a buy opportunity in the daily chart or we
can see the hourly chart to enter a long position. Now for
entering additional positions we use buy opportunities in the
hourly chart. We would exit based on the daily chart only,
because we were trading based on the daily chart.
Similarly we can trade short where weekly charts are in a
downtrend and daily chart generates sell opportunity. Additional
positions are entered whenever sell opportunities are generated
on the hourly charts.
For Day trading we can use the Hourly, 15 Min and 5 Min charts
here we trade the 15 Min chart. Or we can use 15 Min, 5 Mins and
3 Mins charts here we trade the 5 Mins chart.
Good Luck and Happy Trading.
About the author:
Umashankar Galla is a Technical Analyst with 11 Years of
Experience. Is into development of trading systems & analysis of
Markets. His website is http://www.technitraders.com/ Visit
Forums at http://www.technitraders.com/forums/ He can be
contacted at info@technitraders.com
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