Why do we need to trade using multiple time frames?
To increase the effectiveness of our trading strategy. We see a major trend with the use of higher time frames than what we intend to use, and lower time frames for entering into a transaction.
Let’s say we want to trade using Daily Charts. We take weekly charts to see the main trend. Suppose this is an upward trend in the weekly schedule. We will seek to trade only long positions. We will use entries in daily charts to enter only long positions. When sales signals are generated, we just get out of our long positions. That is, we do not sell.
Suppose this applies to a decrease in the weekly schedule. We will seek to trade only short positions. We will use entries in daily charts to enter only short positions. When buy signals are generated, we just get out of short positions. That is, we do not take long positions.
We now use two timeframes. Now comes the time to enter trades or add additional positions. (Pyramiding) We can further use an hourly chart to determine time. Suppose weekly and daily schedules go up. We will enter a long or extra long position if the hourly schedule will give us a buy signal. Suppose weekly and daily schedules decline. We will enter a short or extra short position if the hourly chart gives us a sell signal. This term will not be used to withdraw from trading. This is solely to improve entry deadlines. For the outputs we would use the signals generated in the daily graphs.
Use multiple time frames to trade
We take three charts of equal security. First, it’s a weekly schedule. The next schedule is the daily schedule. The third schedule is an hourly schedule.
We will now use the daily chart to trade. We check the weekly chart for a weekly trend. Not to assume that the weekly trend is increasing. So based on this information, we will just trade long positions in the daily chart.
We are looking for a shopping opportunity in the daily schedule or can see the hourly schedule to enter a long position.
We now use the hourly purchase option to enter additional items. We would only go out on a daily chart basis because we traded on a daily chart basis.
Similarly, we can trade short when weekly charts are in a downward trend and the daily chart creates a sales opportunity. Additional positions are introduced each time sales opportunities are created on hourly charts.
For day trading we can use hourly, 15 minute and 5 minute charts, here we trade the 15 minute chart. Or we can use 15 minute, 5 minute and 3 minute charts, here we trade the 5 minute chart.
Good luck and happy trade.