The Importance Of Multi-time Frame Trading To Professional Traders

Welcome back traders and investors. I’m Rob Hoffman from Become a Better Trader, here to show you key tools and techniques that you must know as a professional trader. In this installment, what I want to focus on is something very near and dear to my heart, very important, Multi-Time Frame Analysis and Trend Resumptions. This is a very real-world tool that I use, and I want to discuss an example of that.

I Want To Set The Stage For This…

First off, we are looking at a daily chart, in crude oil. What you can see here is we spent a lot of time over the course of several days at the $86 level. Now, while we had a lot of congestion there, we also had a lot of room to grow, a lot of air, couple hundred ticks to the upside. At the same time, we still had a couple of hundred ticks down, about 300  to 400 ticks to the downside, with more clear sailing over 200 ticks down below.r.

So great opportunity on either side of the fence here; we just need to go ahead and get out of this congestion zone. The stage is set and we know that we have room to grow to the upside. The overall trend in the backdrop is to the downside, so we know once we get up near that $88 level we’re going to want to be a little bit more careful.

Now walking in that particular morning, we could see the hourly trends overall are to the upside. You can also see the 15-minute trends are to the upside. This is important to understand. We have room to grow to the upside, and we have the hourly and the 15-minute charts looking really good as well. However, as we walked in the session that day – this is 8:30 central time over here, the U.S. Open – you can see we quickly lost our shine and fell right back into a sideways trend on the 5-minute charts. And on the 2-minute charts, you can actually see we were in a short-term downtrend.

Now, with that being said, what we have is room to grow on the daily, we have an uptrend on the hourly charts, we have an uptrend on the 15-minute charts, the 5-minute charts sideways and flat, and the 2-minute is slightly down. What I want to have happen in a situation like this, since the daily chart has room to grow, the 60-minute chart is to the upside, the 15-minute chart is to the upside, what I’m looking for from a multi-time frame analysis perspective and a trend resumption trade perspective, is for the 2- and the 5-minute charts to start getting back in line with the higher timeframes. This is so important. This is something that a lot of people miss.

What actually ends up happening for most traders is just the opposite. Most traders are focused on very small timeframes – tick charts, 1-minute charts, 2-minute, maybe 5-minute charts, for very short-term trading. What happens is they look at this and say “Wait a minute, I want to look for shorts,” because the 2-minute’s down, maybe the 5-minute’s down at that time. It’s been coming down for a little while. So they’ve got a very short-term focus in mind. Whereas actually, at this time, in a very real-world environment, I was looking for long side trades, if we could get the 2- and the 5-minute clicking back in.

So what I did was we saw that through a series of my indications here that the 2-minute charts were starting to come around, as were the 5-minute charts. I went ahead and told the Live Trading Room members at that time if we got back above the 8640 level, I was going to be looking for long side trades. And that’s exactly what happened. My first trade of the day here in this situation was at 8640.

So Let’s Review The Scenario Here…

You can see on a chart that some of our key tools were crossing back over to the upside here. We fired off multiple bars with buy-signals here. And so, what was happening, on a short-term basis, the 2-minute charts were starting to catch up, and break the spine of this short-term downtrend that kind of stymied this nice rally in the backdrop. So the overall trends were the upside. We needed to start getting back up here and start pushing through. So that 8640 area was my first indication that we had a real chance for trend resumption here.

Now, what’s important to understand is that what this did was this became a market where the 15-minute charts have now pushed back into up trends, along with the 15-minute and the 60-minute charts here. So as you look at this, what you’ll see is this ended up going ahead and pushing off, pushing off, and it just became a really good trade. In fact, the last trade of the session that I took in this ended up being at 8862.

I didn’t get the top tick on this; but remember what I said about resistance being up here in that $88 area. I didn’t want to push my luck. with all that being said, what started this whole process on the day, and that’s what is most important for you to understand, is that first move up as those very short-term time frames went ahead and kicked off back into the direction of the higher, more meaningful time frames.

What I’m encouraging you to do is consider, instead of having that more myopic short-term focus on just the tick trades, the 1-minute and the 2-minute charts, let’s see if you can line up some of those short terms that you like to trade in conjunction with the higher time frames. Use some multi-time frame analysis and get some room to grow on the daily charts, and then see if you can actually get a much bigger trade and worthwhile trade out of that.

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