This guest post was adapted from a private, members-only update that Trader Stewie from the Art of Trading shared with his subscribers. This is his perspective on using multiple timeframes to identify trends that you might otherwise miss, specifically why dropping down into shorter timeframe charts can help expose interest and actionable patterns and trading opportunities.
For those of you who are new to Trader Stewie, he has been trading for since 2009 and has a well-earned reputation for being a foremost expert technical analyst. In addition to running the Art of Trading, he also writes a blog called The Impatient Trader and is a prolific Twitter user. When Stewie isn’t trading, he can usually be found in the kitchen cooking up something delicious looking!
I’ve been meaning to do a post of this kind for a while now. One “trick” I often use when plotting charts for the overall market, i.e. SPY, QQQ, IWM, is to dig deep into shorter timeframe charts. If you follow my trades, you will know that I always look at the daily or weekly charts to try and gauge what’s going on with the “big picture” to hopefully try and spot tradable, actionable patterns like the cup and handle, head and shoulder, falling wedge or bull-flag.
But, more importantly, I also use smaller timeframes such as 60 and 30-minute timeframes to try and spot hidden patterns or trends that aren’t visible by the “naked eye” when looking at the longer-term daily and weekly timeframe charts. Smaller timeframe allows you to zoom in, just like with a microscope and look at the “DNA” (genetic makeup) of the chart, if you will.
Take a look at the attached SPY chart below: Art of Trading members who visit the ‘Power Earnings Gap’ (PEG) watchlist often will probably recognize this chart., but to the rest of you it will be new. This is one important chart.
If you saw the above chart, then chances are you probably saw this SPY chart attached below as well. It’s the smaller timeframe chart of the SPY: the 30-minute timeframe chart to be exact.
Note that you can clearly see that there is a bottoming inverse head and shoulder pattern emerging, starting back in early April. Note that it was only truly visible on the 30-minute chart. Based on this, I started to play more longs at that time. Notice how difficult it is to see that the inverse head and shoulders bottoming pattern on the daily charts. Actually, if you look, the daily chart during the late March to early April time looked like a complete mess.
But once you zoom into the smaller timeframes, you would notice that you’ve just uncovered a beauty of a bottoming pattern and boy oh boy, did it ever play out!
Fast forward to today
Use the smaller timeframes (the 15, 30, 60-minute charts) when swing trading to unlock hidden patterns that aren’t visible on the daily/weekly charts! Get that edge!
Speaking of “the edge”, a thing that so many traders talk about and desire but remember, it’s often found in the details – the smaller timeframe charts. This form of multi-timeframe analysis is a great way to time entries and exits, spot and get into patterns ahead of the masses — all because you were shrewd enough to zoom into the smaller timeframes and do some “gum-shoe” detective work.
Hope this helps, Happy Trading!
– Trader Stewie
For more from Trader Stewie, please visit the Art of Trading, the Impatient Trader, or his Twitter Feed. Interested in Multi-Timeframe Analysis? Be sure to check out TrendSpider, a software application that, among other things, makes it incredibly easy to compare data from different timeframes. Learn more here.