Dear Traders,

At the beginning of my trading career, one of the questions I needed a precise answer to was pertinent to price charts time-frames, to be more specific:
  • Which time-frame chart to use?
  • How many charts do I need to reference to confirm my trade?
  • How to use them together effectively?

The entire purpose of this document is to provide a framework and a rule of thumb for this issue, which is solely reliant on the trader's experience stemming from trial and errors and surely losses. So, whether you are an experienced trader, an algo developer or a newbie. This document will add to your knowledge-base. Any names given within this document are not carved in stone, its the concept that matters.

1. CONCEPT

1.1 Normal View:

Let's start by agreeing on the concept, your normal view or the time-frame chart you normally use guarantees you only 50% of the "Big Picture" of the market, as shown in figure 1 below. The "Normal View" is your most important chart. It’s the one that provides the trading’s signals that tell you of any buying or selling opportunities. In other words, it’s the one you normally use with the respective trading time-frame.



1.2 High Definition View:

Before, taking your decision you need a higher-level view or a Step-Up, let's call it the "HD View" which guarantees you an 86% of the market's "Big Picture", as shown in figure 2, below. The "High Definition or HD View" is a higher level time-frame chart. It helps in identifying the predominant trend direction. In other words, are you with the trend or you are fading (against) it?.



1.3 Pit-floor View

Now, you need details or a lower-level view or a "Step Down", let's call it the "Pit Floor View" which guarantees you more details as shown below in figure 3. The "Pit Floor or PF View" is a lower level time-frame chart. Its purpose is to guarantee a quality entry or exit. This can have a tremendous impact on your profitability, holding times and your margin levels.



1.4 Procedure for using 3D View:

Now, you have your 3D views or time-frames, as shown in figure 4 below. The procedure is as follows:




  1. Ensure you have the same indicators on all 3-Views, with the same settings.
  2. Wait for the confirmation signal on your "Normal View" time-frame chart.
  3. Step-Up to the "HD View" to see if it confirms the signal given in Step 2 or in the "Normal View". If it doesn't, this means that you are in a "Fading Trade" (a trade against the predominant trend in the higher time frame), which is a very risky trade.
  4. Step-Down to the "Pit Floor View", and wait for signal for the best entry and exit timings.

2. PRACTICAL FRAMEWORK

Now, let's dig-in for more details, but before we do, we need to agree on a continuum of categorizing trades and not traders. For one good reason, there is no 100% scalper, because even a scalper can swing trade sometimes. Positional traders can day-trade or even scalp sometimes. Therefore, the key is the expected "Time Horizon of your Trade". (Tip: Upcoming News Releases serves me a great deal in deciding.)

1. Now, select the time horizon of your trade as shown in figure 5 below:




2. Use the selected time-horizon to guide you in selecting the recommended "Normal View", you should be using, from figure 6 below:




3- Step Up to select the appropriate "HD View" time-frame chart, as shown in figure 7 below. For example, if the time-horizon of your trade is DAYS, the Step Up would be WEEKS, so its either the Daily Chart or the Weekly Chart.



4- Step Down to select the appropriate "Pit Floor View" time-frame-chart as shown in figure 8 below, In our example, the Step-Down would be HOURS, so three options are available: 5,10, and 15 Minutes Chart. (Will be narrowed further later on.)




Since, the entire purpose of this document is a functional know-how for traders and algo developers, then we need to dig further and revisit the normal view. If your "normal view" is highlighted in "Orange", then your Step-Up and your Step-Down, recommended time-frame charts are the ones highlighted in orange too, as shown in figure 9 below. Let's have an example:




As shown below in figure 10, the proper Step-Up time-frame for the "Normal View" of the 8H chart would be the one highlighted in orange too. The Weekly Chart in this example.





Finally, the appropriate Step-Down or the "Pit Floor" view time-frame chart as per the example is the 30 M chart, as shown below in figure 11.




3. PRACTICAL EXAMPLE

Note: The selected example is totally random and was not selected to amplify or bias the context. On the contrary, an ordinary example was selected, as you will see in the result.

3.1 Selected timeframes Charts

Let's put it all together and see the results. In this practical example, a DAYS horizon trade is expected to be placed on the Aussie (AUD/USD). The Normal View is the 1H chart, the HD is the Daily Chart, and the Pit-floor view is the 15 M.



3.2 The Signals

After placing a basic set of indicators, everyone is familiar with, nothing custom for the sake of the explanation:
  • 3 Exponential Moving Averages
  • Stochastic Indicator
As shown below, two signals were given on the "Stochastic" indicator. What's the next step, a Step-Up?.




By Stepping up to the Daily chart, as shown in the chart below. Only the Long Position was confirmed, as shown by the "Stochastic", the market was getting ready to the upside.



3.3 The SHORT Trade Analysis

But to stay on the objective side, the Short Position to be taken is analyzed, as shown in the chart below:
  • The Stochastic Signal (Point 2) made a SHORT entry at Price Level (Point 1).
  • The Logical Exit signal by the "Stochastic" (Point 3) would close the position at Price Level (Point 4), especially after a "Death" crossover at Point 5, with no profit.
  • It will be assumed that the trader decided to exit at the Stochastic (Point 7), with a close at Price level (Point 6).
  • The "Death" cross (Point 5) by the triple EMA's was a false signal.
  • The end-result is an assumed 22 pips profit in a 9 Hours trade.



3.4 The LONG Trade Analysis (2D View)

Now, let's analyze the Long Position, shown in the chart below.
  • Entry at Stochastic (Point 1) is a Long Position at Price-Level (Point 2).
  • Exit at Stochastic Signal (Point 3) at price-level (Point 4).
  • The "Golden" cross by the triple EMA's was a true signal.
  • The end-result is a REAL 56 pips profit in a straight-forward and confident 17 Hours trade.




3.5 The LONG Trade Analysis (3D View)

So far, its only a 2D trade. Let's Step-Down and examine, the "Pit Floor" view", as shown in the chart below.

  • Entry at Stochastic (Point 1) is a Long Position at almost the same price level as in the 1H chart,.
  • Exit at Stochastic Signal (Point 2), as you note the two consecutive (-) zones, all the previous were alternating (+) and (-). This confirms that this exit at the 1H chart is the best outcome.
  • The "Golden" cross by the triple EMA's was a true signal.
  • The end-result is a real 78 pips (+40%) profit in a 14.25 Hours (-15%) trade.



4.CONCLUSIONS

Let's conclude the results:
  1. The Step-Up (2D) eliminated one fade trade.
  2. The Step-Up (2D) eliminated one false signal (Death Cross) generated by the triple EMAs.
  3. The Step-Up (2D) was confirmed by the other indicators signal (Golden cross) generated by the triple EMAs.
  4. The Step-Up (2D) was over 200% profitable than the faded move with the assumed profit, which isn't.
  5. The Step-Down (3D) was 40% more profitable than the 2D, with 15% less holding time.
  6. The set of indicators used in all the 3D views were the same and with the same settings.

5.RECOMMENDATIONS

Finally, one thing more I recommend every trader to do, using a similar matrix with the template shown in figure 13 below:


Develop your 3D view matrix with the recommended time-frames views framework.
WRITE IT,
POST IT,
and
STICK TO IT.
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