Multiple Time Frame Analysis In Stocks

Multiple time frame analysis is the domain of real pros and experienced professionals. If you have never heard of multiple time frame analysis you probably have not been taking the full advantage of what charting can do for you. New traders usually focus on the daily charts and never look beyond that. But to be successful in trading and investing, you need to do multiple time frame analysis.

What is multiple time frame analysis? Multiple time frames analysis is basically analyzing a stock or index by looking at the different time frame charts of the stock or index. A good trader will look at a few time frames. Some of the popular time frames include:

  • 5 min charts
  • 15 min charts
  • 60 min charts
  • Daily charts
  • Weekly chart
  • Monthly charts

Short Term Traders

Short term traders will focus on the first 3 time frames. They will look at the 5 min charts, the 15 min charts and the 60 min charts. They are also aware of the daily charts but they usually don't look beyond that.

Day traders and swing traders as well as momentum traders will study these shorter time frames very carefully. That's because their entry and exits need to be very precise. A day trader may find a setup from the 5 min charts. He will then look at the 15 min charts for confirmation. Then he will look at the 60 min charts to find support or resistance areas.

Swing Traders

Swing traders are people who buy a stock and hold it for 2-10 days. Because stocks do not go up all the way but move up and down and sideways, it gives the swing traders an opportunity to profit from the mood swings of the market. A swing trader might buy a stock when it is oversold and sell it when it reaches overbought levels.

Swing traders will find opportunities using the daily charts. Then they have extra confirmation from the weekly charts and finally they time their entry using 60 min charts or other lower time frame.

Investors

Investors are known for their long term holding power. Investors do not trade in and out of stocks the way traders do. The first reason is probably because they do not do it full time. They have another full time job but do their investing part time. Another reason is they have a lot of money or are very large investors who manage very large funds. Someone with a lot of capital cannot trade in and out of stocks the way traders do.

Take for example an investor with $50 Billion to manage. He cannot put in $1 Billion into a stock and exit next week. The mere jumping in and out of the stock will cause the stock to move up and down erratically.

Therefore, if a very well funded investors wants to enter a stock, he or she needs to employ the weekly charts and monthly charts to enter and exit the position.

Conclusion

After looking at the many examples, I'm sure you will agree with me why it is so important to do multiple time frame analysis. Looking at one time frame only gives you one part of the picture. If you look at many time frames, you will have the big picture that will guide you to the proper entry and exit points.

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