Time and Perspective: Trading with Multiple Time Frames

Your 200-day moving average may show a prevailing uptrend, but consider zooming in with a different perspective to refine your entries and exits.

Print
https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Refine your trading strategy by analyzing trends and trading with multiple time frames.
4 min read

Visit almost any Southern California beach in the early morning hours and you’re likely to see group after group of surfers paddling out in search of the perfect wave. The quest is never a straight line. As they push to get past the breakwater, small waves temporarily stall their progress, but as long as their strength holds up, they’ll continue to move forward.

Many traders believe markets exhibit similar behavior, yet they don’t realize that stocks move in multiple time frames, so they usually only focus on the most immediate one. By understanding how these different time frames work together, you’ll find a whole new world of potential trading opportunities.

Everyone knows “the trend is your friend,” but trends happen in different time frames. The primary or long-term trend is always the strongest. The goal, then, is to first identify the primary trend and then take advantage of short-term and intermediate-term trends within the overall trend.

Where Do You Start?

Some say a good place to start is to plot a 200-day moving average (MA). The 200-day moving average is the standard long-term average, and many institutions will only buy stocks that are trading above it. In figure 1 we see a long-term chart with a 200-day moving average that is sloping upward and has provided support to the trend at numerous points. Now let’s zoom in on the shaded area.

200-day moving average

FIGURE 1: 200-DAY MOVING AVERAGE.

This chart shows a stock that’s trading above its 200-day moving average. Image source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

In figure 2 we’ve add the short-term 20-day moving average, which is more responsive to price movement. The green arrows indicate entry points when price moves above the indicator, and the red arrows exit points when price closes below it.

200-day moving average, 20-day moving average

FIGURE 2: TWO TIME FRAMES.

This chart includes a 200-day MA and a 20-day MA. Image source: the TD Ameritrade thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

Using the short-term moving average here allows trading with the primary trend but attempts to avoid drawdowns within that trend.

Another way to try to take advantage of the different trends within time frames is look at a chart using different periods. The chart in figure 3 is daily, where once again, the 200-day moving average shows a strong primary uptrend. Now let’s zoom into the shaded area, but this time, using a different time frame—the one-hour period.

200-day moving average, uptrend

FIGURE 3: STANDARD MA.

This chart shows another 200-day moving average with a strong primary uptrend. Image source: the TD Ameritrade thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

In figure 4 you can see that the stock is experiencing a pullback within the primary trend, as indicated by the two red lines forming a downward channel. Because this is an intraday chart, there may be a better way to fine-tune entry when the short-term trend changes and resumes movement in the direction of the primary trend.

Tracking trends with an hourly chart

FIGURE 4: HOURLY CHART.

Trends within a one-hour chart may look different from a longer-term perspective, allowing you to refine your strategy. Image source: the TD Ameritrade thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

A return to the primary trend is indicated by a price break above the top channel line (see the first green arrow above). A second opportunity (shown by the second green arrow) presents itself when the breakout retests, and “kisses,” the top side of that channel line before resuming the move upward.

Although you would see a similar pattern if you stuck with the daily chart, not having this more accurate view on the shorter time frame might cause some traders to enter too early and get shaken out, or enter late and miss a good chunk of the move.

As with most things in trading, having more information helps traders decide how confident they are in their views. And the more aware you are of how a stock has moved in its respective time frames, the better you will be at deciding where you think the stock will go next.

Is Trading Your Passion?

thinkorswim® is an advanced platform and so much more. It’s your entry into a holistic trading experience brought to you by TD Ameritrade.

Call Us
800-454-9272
adChoicesAdChoices

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

Scroll to Top