Today I want to discuss the concept of using multiple timeframes to make trading decisions. Each trader should choose the timeframe appropriate for them and their personality. It may take a beginner some time to experiment with their preferred trading style and timeframe.

However, once a trading timeframe is chosen, it is wise to use multiple timeframes to help make trading decisions. For example, for intra-day swing trades, an entry might be taken on a 1minute chart but stop trailed on a 30-minute chart to avoid getting shaken out of a position. 

Trading Styles

Now there are all different types of trading styles that suit different people’s personalities and lifestyles. They are:

Position Traders: They make decisions based on multi-month timeframes. They tend to hold trades for multiple months based on either technical patterns or fundamental reasons.

Swing Traders: They will hold their trades for multiple days or weeks. They might be trading technical setups as well as news catalysts.

Intra-Day Traders: Often called day-traders, the precise and more correct term is Intra-Day traders. They will not hold positions overnight but will only trade intra-day. Now they might be intra-day swing traders, where they may hold their trade for a few hours, perhaps looking for a close at the high or low of the day. Or they might be hyper scalpers, trading in and out of trades like an algo, constantly bidding and offering stock, sometimes making hundreds of trades a day.

When learning how to trade, trying all styles and focusing on which suits your personality is essential. I, for the most part, am a swing trader trading off the 60-minute timeframe. I hold trades for multiple days usually, as it suits my personality and my lifestyle. Although I will occasionally make some intraday swing trades, for example, on Friday lotto plays. You can read more about that here.

Once a trader becomes more experienced, although they may focus on one particular style or timeframe more than another, they can become a bionic multi-timeframe trader as they understand when to use what timeframe. For example, an experienced trader may have fundamental position trades based on an upcoming catalyst but may also scalp a breaking news trade for 30 seconds. All these different styles can become a part of your trading arsenal with enough experience.  

Higher Timeframe for Support and Resistance

Now traders should take a top-down approach when trading multiple timeframes. The higher time frame should be used to identify key levels of support and resistance. The reason for this is that those are the biggest levels that everyone is looking at. 

Think of it this way, the big money, and I mean the really big money that manages billions of dollars, tend to base their decisions on the larger timeframes. This is because it takes time and liquidity to build into and get out of a position since the large funds control so many shares in any particular stock. Thus, the big money is mostly position trading and looking at the major levels off the daily and weekly charts. If that is what the big money is doing, that is what you should be doing too.

Moreover, on days with a catalyst such as corporate earnings or breaking news that can alter a company’s fundamentals, a stock’s trading range will usually expand. For example, if a stock usually moves $3 (Average true range or ATR of 3) on such a day, it may move 2 or 3 times its usual range, so 6 or 9 dollars. You will notice on these exceptional days that stocks seek out the major levels that are the most obvious on the larger time frame. This is most likely due to the fact that the big money is adjusting their positions. This is why such preparation is key. 

Medium Timeframe

Once the major levels on the daily and weekly chart are identified, I zoom in to a lower timeframe to wait for my trade setup where I can identify good risk/reward points of entry. 

I use the 60-minute chart as my trading timeframe for the most part. And my bread and butter setup is when I see the 200-hour, the 30-hour, and 13-hour moving averages (MA’)s all pointing up with price holding above those levels. I also want to see price above the 4-day and 7-day anchored VWAP. I like to get long, strong stocks. And when they pull back and consolidate above those levels, that is my green light to pull the trigger. Obviously, there is more to it than that, and I discuss that in more detail here.

Lower Timeframe

A lot of intraday traders I know trade off the 1minute chart or less. However, they will still have the daily chart for their major support/resistance levels, the 30-minute chart for more recent levels and to separate the forest from the trees. Then they will make their trading decisions (entries) based on the 5minute and 1minute charts. 

When Timeframes Line Up

The best trading setups occur when all the time frames align. For example, when the big picture trend and the micro picture (1minute chart) are in your favor, this can, in some cases, lead to unique risk-reward setups. This trade is rarer than most but if you can time it right, getting a great entry with low risk on the 1minute chart and catch a trend, then switch your timeframe to the 30-minute chart or even daily, you may be able to catch a multi-day runner. This is the basic concept of letting your good setups ride.

Traps to Avoid

You should be careful to avoid switching timeframes just to find a setup you like. Some beginner traders will just switch between time frames until they find a setup they like and then make a trade. Others may get bogged down waiting for all timeframes to align perfectly, which is a very rare event. They then may be afraid to pull the trigger due to contradicting signals, missing adequate setups, and then feeling regret.

The point is a trader should find the right time frame for them and get used to trading one timeframe. The others are there as a guide to find support and resistance levels and to help you separate the forest from the trees. 

Some traders, for example, get upset when they get out of a trade early. An excellent way to extend your winners is to move up a timeframe. Instead of closing a trade on the 1-minute chart, switch to the 5- or 30-minute chart so that you are not shaken out of a natural pullback.

Bottom Line  

Each trader should pick a timeframe to trade off of that suits their personality and their style. However, once that timeframe is chosen, it would be wise for traders to use multiple timeframes to aid in their decision-making. The higher daily or weekly time frame can be used to spot major support and resistance levels that the “big money” and most traders are also watching. The smaller time frames such as the 1- and 5-minute charts can be used to make zoomed-in trading decisions with tighter stops. Medium timeframes such as the 30 minute and 1-hour charts can be used to zoom out and see the forest from the trees. This can help intraday traders hold their winners longer if that is something they are working on. In trading, as in life, it’s always wise to consider things from another point of view.