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Multiple Time Frame Trading: In a divergence, which frame dictates?

  • Post #1
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  • First Post: May 16, 2007 12:35pm May 16, 2007 12:35pm
Hello All,

I wanted to ask the forum here for its opinion on multiple time frame trading. Now, when you look at the charts and it seems as if the Daily and the 4 hr or 1hr is pointing the same way, then the decision is very easy in that you trade in that direction. But my question is, is when you have a system or methodology of trading and the Daily and the 4hr or 1hr are going in the opposite direction, which side rules? That is, is the argument that the Daily chart shapes the direction and the trend of the earlier time frames, and that the longer timeframe will dictate ultimately where the direction of the currency will go? Or, is the argument swayed the other way where in reality it is the 4 hr frame that shapes what the dailies will look like so when there is a divergence in the two frames, the 4 hr (or the shorter timeframe) is the one that should be followed. Or , as a third, simply don't trade multiple time frames and stick to one timeframe as major pivots/support/resistance points on the longer time frames will ultimately show up on the shorter frames??

Thanks.

Take care,

THE HUN
The longer term time frame dictates the trend. If a divergence occurs, this means it is most likely a temporary pullback (the peaks and troughs you typically see in a trend). Occasionally, it could mean a trend change, but more often than not it is a pullback.

In such situations, it is best to stay out of the market and watch it until the shorter time frame agrees with the longer, then take the signal. Some traders like to "counter-trend" trade by taking the position of the shorter term signal, because it could mean getting on a new trend early. However, there is a greater chance of trend continuation than trend change, so I wouldn't recommend doing this until you've had a few years of trading experience.
I'll throw this in the mixer: I work from the longest TF to the shortest. For me, it makes sense to manage the trade in the TF in which the signal or entry was generated. If for some reason I was trading drunk and scalping off 1 minute charts, it would not make much sense to look for confirmation on the monthly chart or vise versa. Seems simple.

bb's idea about directional agreement sounds right to me.

Quote
major pivots/support/resistance points on the longer time frames will ultimately show up on the shorter frames

I think you've got something there...
The same way, doesn't matter to me which time frame I'm on, but I do like the next higher time frame chart to line up with the lower time frame chart I plan to take profit off. Most times I prefer at least 3 time frames in my favor. Gives me time to get out before my stop is hit if it does turn, getting support from a higher time frame. I mostly play the 1h and 4h time frame for support, but I like getting in and out in a day.
Thanks for all the advice! While I love it when I see the long and short time frames converge, a lot of times they do not. In the times that they do not, then the simplest would be to only trade off of that chart and make decisions based there.

Take care,

THE HUN.
Quoting thehun69
Hello All, I wanted to ask the forum here for its opinion on multiple time frame trading. Now, when you look at the charts and it seems as if the Daily and the 4 hr or 1hr is pointing the same way, then the decision is very easy in that you trade in that direction. But my question is, is when you have a system or methodology of trading and the Daily and the 4hr or 1hr are going in the opposite direction, which side rules? That is, is the argument that the Daily chart shapes the direction and the trend of the earlier time frames, and that the longer...

Hello, thehun69, I like your question poised to the Forum, sometimes, I do face the problem too. Thank you for your posting, it really help a lot to clear the doubt.
  • Post #7
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  • Last Post: Feb 19, 2014 1:18pm Feb 19, 2014 1:18pm
Quoting bluebuddha
The longer term time frame dictates the trend. If a divergence occurs, this means it is most likely a temporary pullback (the peaks and troughs you typically see in a trend). Occasionally, it could mean a trend change, but more often than not it is a pullback. In such situations, it is best to stay out of the market and watch it until the shorter time frame agrees with the longer, then take the signal. Some traders like to "counter-trend" trade by taking the position of the shorter term signal, because it could mean getting on a new trend early....

Hello, bluebuddha, your reply is well-said. Your comments are truly convincing. Thank you.
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