Multiple Time Frames
Although the use of multiple time periods for analyzing markets has been popular for decades, few professionals have talked about it. It is only since better quote equipment has allowed this technique to be accessed by a wider audience that this approach has seeped into the public domain. The combination of multiple time periods allows the trader to time entries into the market using very short-term data, such as 10-minute bars, while watching the longer term picture for the daily or weekly trend. Because it is agreed that most trends are best identified over a longer time period, while choosing the specific entry point requires a much faster response, the combination of two or even three time intervals is very sensible. If the trend can be identified profitably, then the trader can filter or select short-term trades that have a better-than-average chance of becoming winners.
For most traders, the use of any one time frame presents special problems. The very short term contains a high percentage of noise that obscures the market direction. The numerous individual patterns that can be found in a 5-minute bar chart can divert your efforts away from the big picture. The use of only weekly charts, although they clearly show the direction of prices, present higher risk and little opportunity for a good entry point. The obvious solution is to combine both time frames into a program that uses each to its best advantage.