Multiple Timeframe Analysis Trading Strategy

MULTIPLE TIME FRAME ANALYSIS      

          Daily, weekly, and monthly time frames can and should be utilized as well. To understand how price moves within the pivots, begin by breaking down the time frames from longer-term to shorter-term. So start with a monthly time frame, for which, as you know, there is a price range, or an established high and low for that given period; so we should be watching these predictive price points as well. Think of this: There are approximately 22 business days, or about four weeks, in every month; and each month, there will be an established range a high and a low. In a week, there are typically five trading days. Now consider that on one day of one week in one month, a high and a low will be made. It is likely that the high and the low may be made in a minute or within one hour of a given day of a given week of a given month. That is why longer-term time frames, such as monthly or weekly analysis, should be included in your market analysis. It is also the reason why I do not use the R-3 or the S-3 targets. I rely more on the longer-term time frames targeted support and resistance levels. Pivot point analysis relies on data from specific time frames in order to determine support and resistance levels for the next particular trading session. It is productive and both time- and price-sensitive information.

The analysis or calculations for the prior day, week, or month may not be applicable two or three sessions later. At the end of each time period, data will need to be recalculated. The exception to this rule is that if there is a time period after a wide-range session that is a smaller range, then I would keep the data from the session with the wider range in mind for another one or two trading periods. For example, using a daily analysis, if Tuesday had a wide trading range and then Wednesday had a small range, I would keep the targeted support and resistance numbers derived from Tuesday in mind for Thursday’s session. The same principle applies to a week or a month.

In the world of 24-hour trading, the most popular question I get from those studying and using pivot points is, “What are the times that you derive the high-low-close information from?” There are many different people telling many different stories. Here is what I do and what seems to work best. For starters, just keep things simple and apply some good old fashioned common sense. If the exchanges and the banking system use a specific time to settle a market, then that is the time that you should consider a close. The exchanges and banks should know—their rules make the money move. I want to follow the money flow.

• Stock traders use the settlement price from the close of business at 4 p.m. (ET).
• Forex traders should use the 5 p.m. (ET) New York bank settlement close.
• Futures traders, in the e-mini-S&P, Nasdaq, and Russell contracts, use the close of 3:15 p.m. (CT). For the Chicago Board of Trade (CBOT) mini-Dow contract, I take the close at 4 p.m. (CT).
• For the weekly calculations, take the open from Sunday night’s session, and use the close on Friday.
• For the monthly calculations, take the open from the first day of the month, and use the close of the last day of the month.

We have established the reasons why we use all sessions for extracting the range, or high and low, and what time periods constitute the closes. We know where and how and when.

 Now, let me show you what pivot point projected supports and resistance line up to look like. In Figure 5.5, we have a good representation of how the R-3 down to the S-3 levels would line up based on a previous session’s high, low, and close data. The hash marks between each level are the midpoint numbers. As you can see, this presents 13 price points to monitor. To most traders, including myself, this is simply information overload. If you include using these 13 levels for each day, week. and month, that would put 39 trading support and resistance numbers on your chart for each trading day. That could cause a trader to possibly go blind or, at the very least, could create analysis paralysis. Granted, you may be right in stating that you picked the top or the bottom of each trading session, but it is impractical or highly unlikely that you can trade off that information. I am not saying that at times it may help having the mid points or R-3 or S-3 target levels in front of you; I just believe in keeping things simple, and less is better.