Part III. Some Rules and Advanced Talks

Some rules that will help you to deal with multiple time frames

1. Don’t use more than 3 (preferably 1-lower and 1-higher) and no less than 2 (preferably and 1-higher) time frames constantly in your day to day trading.

2. Here we assume that you’ve already decided what time frame is your favorite. If not, here are some selections for you (higher-preferable-lower):

- Monthly, Weekly, Daily;

- Weekly, Daily, Hourly;

- Weekly, Daily, 4-hour;

- Daily, hourly, 5-min or Daily, 4-hour, 30 min;

- 4-hour, 30-min, 5-min or 4-hour, 1-hour, 5-min;

- 30-min, 5-min, 1-min

Personally, my preferred composition is Daily, hourly and 5-15 min charts. So, let’s take a look what the purpose of different time frames in this selection:

For Daily-hourly-(5-15)-min selection:

3. All stuff at higher time frame is stronger than on the lower time frames – support, resistance, overbought, oversold etc…but simultaneously wider.

4. Despite whatever selection you trade – you have to look at monthly and weekly time frames. Ignore the trend, but pay attention to support/resistance levels, overbought/oversold and patterns;

5. The daily chart is the major chart for this selection, since it gives you the context – enter long, short or stay flat. Here is you have to pay attention to trend direction (buy or sell), support/resistance, overbought/oversold and patterns;

6. Hourly chart – your preferred time frame. Here you have to watch for the trend, but only as confirmation of entry levels, support/resistance levels, patterns and profit targets. Ignore oversold and overbought.

7. We use 5-15 min chart only for confirmation of particular entry points – ignore trend, support/resistance and oversold/overbought. Use patterns that confirm the entry point.

Advanced comments – trend compounding

Commander in Pips: If you have worked a bit with multiple time frames, you probably have some questions about trend estimation and combination. I mean how to combine MACD on Daily time frame and hourly time frame. We assume that we work at the sameDaily-hourly-5-15 minselection.

1. Our context and our trend is a daily trend indicator, let’s say MACD. It tells us where we want to go – Long or short. For simplicity let’s assume that we want just to ride the trend and no patterns are forming currently on the market. It is preferable, that the market stands in thrusting mode. Look at chart #1:

So we see all that we want from perfect move – market in thrusting down move, MACD shows bear trend, hence we want to enter short. Now market has reached Fib resistance and we want to estimate where we could jump in.

2. For that purpose we use hourly chart:

Here we see that MACD in Buy mode, but we know that market stands at resistance. Here we have to watch over two events. First, look at the daily trend that it will not turn bullish. In this case our context for short selling will vanish. Second is to watch over the hourly trend – when it will turn bearish, we can use the nearest hourly Fib resistance to enter short. Now, it’s still bullish. This is tells us that the market could show deeper retracement and currently is not the time yet to enter short.

So, our task is to wait for when hourly trend will turn bearish, while the daily trend will hold bearish all the time: