Perhaps one of the most important things to learn about in technical analysis is how to properly utilize more than one time frame to gain a clear picture of the markets. Most traders don't ever bother learning the details of how they specifically should do this given their trading plan and trading methods. Whatever your method may be, learning this skill is a critical part of trading.
Let's compare this to something outside the trading world--a newspaper. Being from Chicago, I hate using this as an example but it is one of the best examples that comes to mind: Last weekend's sports headline was "Packers Win The Superbowl". If continued to read the text below the headline, it was slightly smaller in size and said "Aaron Rodgers named Super Bowl MVP". It then gave some more information, in even smaller font, talking about the score of the game, some key plays, and then referenced another page inside the paper to continue reading on. Once I went to this page, I was greeted with even smaller font, which went into great detail on virtually every aspect of the game. It's as if the entire game was summarized in this entire page of small text.
Now, let's step back into the world of trading and take a look at how this can compare to the markets and more importantly how it compares to multiple time frame technical analysis. The specific time frame that you utilize will depend on your trading style and market, which is something we talk much more about within the Price Action Course. However, for this example, we are going to assume there are 4 time frames: the weekly chart, the daily chart, the hourly chart, and the 5 minute chart.
Let's compare how each of these charts is similar to the newspaper. The weekly chart conveys very little information--with each candle representing one week worth of data. This is very similar to the huge headline "Packers Win Superbowl" because it gives us a great amount of information, however it does not give us detailed specifics on how this happened.
Next we move on to the daily chart, which gives us 5 times the information of the weekly chart. This is because each candle represents 1 day instead of 1 week. This is very similar to the headline "Aaron Rogers named MVP" because we now learn more information about how the Packers won the Superbowl--with Aaron Rogers playing a critical role. This is similar to the daily chart because it provides more details on how price moved, but it still doesn't tell us the exact specifics of what happened.
Moving on we now look at the smaller font below the headline. Now we are getting into the meat and potatoes of what happened in the Superbowl--understanding the score, key plays, and other critical players. This is similar to the 1 hour chart, which conveys far more information than the daily chart. This chart tells us exactly what happened during that one given day--information we didn't receive from the daily chart.
And lastly, we move into the middle of the newspaper, where we find virtually every single detail of the game--as much detail as if we had watched the game on TV. This is similar to the 5 minute chart--here we can see just about every tick and movement and understand each individual price movement on a micro basis. This can show us exactly how price responded to various areas and gives us a "play by play" analysis of what is happening in the markets.
So now that we understand each time frame and how they are related to the main story, we need to fully understand how to combine all these time frames together to achieve the best and most profitable outcome. Unfortunately this isn't an easy task by any means, however it is something we touch on quite regularly throughout the price action course. I really wouldn't be giving this topic justice if I tried to explain it in a few lines of text, so I reserved this more advanced concept to be embedded throughout the 7 hours of video within the course. In short, there are several different setups and different ways to combine these charts to have an efficient and effective outcome.
Remember--what chart you use is determined by the type of trader that you are as well as the market which you are trading. There are certainly some generalities that exist from trader to trader in terms of time frames, however it can also vary greatly from one trader to another. The most important thing is to make sure you are using multiple time frames and if you aren't you definitely need to learn more about how to combine charts to gain the most important data from the markets.