Hi MasterTrader Technical Strategy Students,
I get many emails with questions about an MTS concept, chart analysis or just, what do you think about this trade. To help all that have taken MTS I thought, why not send some of the questions and my answers to everyone. Even if it is something that you do know, repetition of trading concepts and strategies always helps.
So with that in mind, I will be sending you these Q&A to you from time to time. I hope it helps. If you have any comments or suggestions send them to me greg@mastertrader.com
And I always like to hear about your “Lightbulb Moments” and Successes!
All the best,
Greg
Here is the Q&A
Hi Greg,
I’m studying your MTS course, it’s great! I have one question about multiple time frames correct use. For example; I trade swings on stocks using daily charts as a primary time frame, I know that the weekly as to be in alignment or neutral (better in alignment) with daily. About the hourly I’m a little bit confused because even if I understand that it can be used to refine or add positions it’s not clear how to consider the hourly trend, to better explain, if I have a daily buy set up, weekly in alignment BUT the hourly is in downtrend is it ok to enter the trade using only the daily buy setup?
My doubt is raised because I’ve seen traders that want to see both weekly and hourly showing signal of direction before entering a trade on the daily chart.
My answer
Just to be sure it’s clear, the weekly timeframe just has to be trending in the direction of the daily, it doesn’t have to be a buy set up it could be a red bar down or two of them
With the daily being a buy set up, it assumes that prices have retraced to an area of price support since you are saying that the hourly is in a downtrend. If the daily buy set up did have a reversal day (bottoming tail or green candle) the hourly in a downtrend. That would mean that the bottoming tail or green candle is the first reversal day. Meaning, the daily candles are lower highs and lower lows.
In this situation to take the buy set up, which does require breaking above that day’s high, it would be okay taking it with the hourly downtrend with a bottoming tail. That’s because the bottoming tail would be a downside shakeout on the hourly of some type. Whereas just the green candle could be a consolidation within the downtrend.
If you’re daily buy set up had two candles side-by-side, but prices had not pushed above the prior days high yet (the trigger) you would have an hourly consolidation – a base.
So the way of entering on the daily timeframe without looking at the hourly timeframe would be to require that either you have a bottoming tail candle or at a minimum a two-day type of by set up.
Remember that the more restrictions there are the greater the odds of the trade working, but there is also the possibility of missing out on the move. There’s a trade-off.
A buy trigger could be simply trading above a prior red candle high, which would certainly be a downtrend on the hourly timeframe. But could work out as a swing entry.
This type of entry would likely result in a downward retracement intraday but the stop being under the red candles low theoretically should be enough room to prevent the stop out. Of course, the size of the red candle would be a factor.
In this situation, advance management strategies would be considered by entering with half the shares and twice the stop.
Hope this makes sense and helps. I suggest that you find scenarios like I’ve explained and capture the charts. If you would like to do that and send those examples to me I’m happy to review and provide further feedback.
All the best,
Greg
