Time Frame Analysis
Stockscores.com Perspectives for the week ending October 29, 2005
In this week's issue:
The stock market is war. Every day, the buyers and sellers battle over who is right. The buyers buy because they think the stock is going higher in the future, the sellers sell because they believe the stock is destined lower. For every transaction in the market there is a buyer and a seller and one of them is always wrong. What side are you on?
While the market can be divided in to these two groups, there are a wide range of goals within each group of investors. Some buyers are acting on an expectation that prices will go up in the next 7 minutes, others are looking out with a 7 year time horizon.
It is the differing time frame expectations that deserve focus by all traders. You can improve your success in the market by getting as many different time frame expectations on your side as possible.
For example, suppose you are a day trader and considering a breakout from an ascending triangle pattern on the two minute intraday chart. That chart pattern indicates that the short term outlook for the stock to go higher is favorable and the group of knowledgeable short term traders believes this to be so. If you buy this breakout, you have a small battalion working in your favor.
But before you act, take a look at the 15 minute intraday chart. It tells a story about what the swing traders, those looking to trade the stock for a 1 to 5 day move, are thinking. Does this chart also predict that the stock is going higher? If it does, then buying that 2 minute breakout now has a larger group of buyers fighting with the same goal.
What does the daily chart tell you? The stock may look great on the intraday charts but if the daily chart gapped down this morning then you know that a larger group of investors are pessimistic. If, instead, the daily chart shows a breakout to new highs from a rising bottom consolidation then you have just expanded your group of fighters to a larger army. With a good daily chart comes a group of buyers with a longer time horizon expectation.
Finally, check the weekly charts. If that chart is also breaking out, check to see if there is long term resistance that may contain an upward move. If the weekly chart tells the same story as the daily, the 15 minute and the 2 minute then you have a large force acting in your favor, even though you only intend to day trade the stock.
Looking for confirmation on multiple time frames is important to improving the probability of your trading success. I find that a good day trade chart set up on the two minute chart works a lot better if the daily chart is saying buy as well. Every trader looks at a different chart for a motivation to enter the trade. If all the charts are saying the same thing then you have a lot of people who are going to give that stock momentum to make your trade work.
When day trading, I like to look at a 2 minute and daily chart.
When swing trading, I like to look at a 5 and 15 minute as well as a daily chart.
When position trading, the daily chart is most important but I also consider the 15 minute and the weekly.
Checking for confirmation on multiple time frames only takes an extra minute, but the impact it can have on your trading success will be dramatic.
Back To Top
There are times when it is better to sit on the sidelines rather than make trades. October is the end of what is traditionally the most difficult time in the market. From November till May is the best money making season. I did a lot of market scans tonight trying to find something worth trading but just could not. The market is uncertain and lacking confidence so be patient and wait for conditions to improve, which should happen in the next few weeks.Back To Top
References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
Back To Top
|
If you wish to unsubscribe from the Stockscores Perspectives Weekend Edition or change the format of email you are receiving please login to your Stockscores account. Copyright 2004 Market Perspectives Inc.
|
|
