Trading Systems and Methods, + Website, 5th Edition

CHAPTER 19

Multiple Time Frames

In Chapters 8 and 9, combinations of two trends and two momentum periods were used to create well-known systems and indicators such as Donchian’s 5- and 20-day Moving Average, the two-trend crossover systems, double smoothing, the MACD, and the Turtle method, among many others. Each of those methods used daily data for all calculations. This chapter looks at systems where the components use a combination of intraday, daily, and/or weekly data in order to improve both timing and results.

Although the use of multiple time periods by floor traders 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, and choosing the specific entry point requires a much faster response, the combination of two or even three time intervals is very sensible when each one targets a specific purpose. 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 ...