Although this site is for ForEx, I trade stocks but the idea is the same. The few questions I have is the basis of multiple time frames and the macd indicator. In the example I use 3 time frames; 1h, 15min and 5 min.
Question1: in the 1h chart, the MacD has crossed a sell signal (trigger) line (which produced the downtrend for indicated) but it still has not crossed the 0 line indicating it is still bullish. Using multiple time frame analysis (the one hour being the highest time frame) in order to even think of taking a trade do you have to wait until a buy signal is produced above the 0 line? Or the fact that it is above the 0 or below the 0 line does not matter and only concentrate on the buy or sell signal (trigger) produced because what you are actually doing in fact is riding 1,2 or 3 hours and using smaller time frames to get in/out?
Question2: I have read that you should use the smaller time frame to enter (the 5 min) but use the middle time frame (15 min) inducators + price action to decide when to sell (or short as it is in forex if you are currently in a trade); for a trailing stop which hermonic would be in use? The 5 min harmonics or the 15 mins?
Question3: A trade to enter rarely looks good. A good looking trade is one that if you would look at the MacD on all 3 time frames it would either be above the 0 and showing a sell signal or below the 0 showing a buy signal. I’m not on ForEx so I’m limited from 9:30 to 4 (us markets) and I have to re-scale every day (get back into a trade since I don’t hold over night). In order to buy or sell I have been using the following idea (seems to be working but only good for the low;5 min, time scale) when the high time is showing a - on the macd, I then look at the medium term (15 min); when changes from + to - on the macd I then look at the low time (5 min) and once it changes from + to - then that is my trigger. Is there a better way to do this using the macd and multiple time frames? One of my main problems is I get in late using this and I would welcome ideas to get in earlier.
I would also keep a strong eye on support and resistance levels, especially the main ones as these will influence you MACDs after a break.
1 - depend on how aggressive trader you are. If you want to be safe and wait for the cross of the 0 line. You will probably take less out of the market, but be safe.
I would focus only on the buy and sell signals in higher time frames, and noting the strong support and resistance levels, with possible breakouts of these areas.
2- In smaller time frames (I would not go as low as 5 min, there is too much noise). Use this time frame to enter and exit, with MACD signals.
3- when you pull the triger you will never know where it goes. If you have found something that works for you, stick to it. Understand also when this will not work, and expect it not to work 100% of the times
In stocks keep an eye also on the sector you are trading, sector rotation (intra market analysis) and on volumes. Don’t over do the technicals
Just want to add something here about indicators…
I’m not sure what “Momentum” calculates, but I’m assuming it’s something similar to determining where price is presently trading relative to x periods range…
Are you familiar with how all three indicators derive their values?
If not, I’d recommend manually calculating each to understand where the figures are coming from.
To me, it looks like you’re using 3 indicators, (which in my opinion is [I]way[/I] too many) that all are portraying relatively the same information?
This should make sense to you logically, if you do the math out for each and see how similar the calculations are. Why don’t you use one indicator, and learn it in-and-out?
As for DK’s comments- I agree. Price is boss. But, some indicators are powerful tools which can help lead price action and give us a signal for a potential move which has not yet occurred. I.e. Bullish/Bearish divergence on a 14,3,3 STOCHASTIC.
I use price action if I’m looking around but really my time frames that I use are 15 min,5min and 1min. I just used the higher time frames for the question because I assumed most look at the day,4h and 1 h, so it would give them better understanding of the question. When I go down to the 1 min chart it’s tougher to see the price action… that’s why I use techs, but I use price as a confirmation.
No, I know how to calculate each of them. They each tell me something different.
For the momentum indicator think of it as another stochastic. I use both of them at the same time because although they look the same they give me different information. Stochastic is based on a 100, which is it’s downfall. So lets say on the 1h chart, the next 3 candles will be going down. It’s far from a trend if 3 candles go down, but those 3 candles are 12 candles on the 15 min chart and 36 candles on the 5 min chart. 36 candles downward is a very nice trend. This is where Stochastic has problems. It bounces around 0 and it gives you no information where you are in the trend because all it is telling you is that it is around 0 on the scale while you watch price fall. So to avoid that you move up time scales so the stochastic works. Great so now your stochastic works but now you made another problem. Your stochastic needs bars in order to work. So lets say the 1 hour bar has a range of 27 pips and the 5 min has a range of 3 pips. I’d rather lose 3 pips than 27 pips for it to tell me to get out, but I can’t because of the time frame. That’s the use of the momentum indicator, it acts like a stochastic but it’s not referenced on a 100 scale. So it doesn’t get stuck and it’s great to so overbought or oversold in a trend. So now I can exit on a 3 pip avg bar rather than a 27 bar. It’s fine if you find a trend and want to go from extremes high to low and don’t care what happens in between a trend. Where the momentum indicator has problems is the “in between” where stochastic does wonders. Let’s say stochastic changes around 60, so it tells you it is a change but with the momentum indicator working with the stochastic I can tell you if it’s going to be a strong move in price, or a weak move in price. The Macd is there for confirmation and is the “best indicator around” and rightly so because it deals simply with averages after the fact. It’s like looking for a rain storm and finding the ground wet. So to find the rain storm you are going to follow the wet road and hope it begins to get even more wet, so this is why it works. The problem is with this is you don’t know where you are at compared to where you want to be. Meaning, who cares about average 1 compared to average 2, where is the price? So if you look back at the screen shots you will notice at the top different avg’s with prices. This tells me where price is compared to the macd (and other macd’s on other time frames). So that alllows me to see where the price is relative to the 2 other avg’s the macd is telling me about. So I know where the storm is and am not following the wet road blindly. So at this point I can tell you how strong the storm is going to be, and where it will be going, what I am missing is something telling me to sit on this hill and wait until 2 pm. 2pm, where’s my storm? Oh there it is.
Hi,
we should think that a signal in a lower timeframe could be:
The start point of a new trend
or
A retracement to the overal movement (the higher timeframe). So, if we want to trade not taking too much risk, we would have to wait, at least, any divergence with MACD or break points with S/R on higer timeframes to confirm wether the movement in the lower timeframe is suposed to be a momentum or a retracement.
That’s a pretty good explanation. Do you personally use signals on 3 time frames or just 2? Eg. the Highest and lowest would be 2, the highest, middle and lowest would be 3.
I usually use signal on only 2 timeframes.
First, I take a global vision in the higher timeframe (for example, the Daily chart) and if there is any divergence, or the last high or low has been broken (also in th higher timeframe), I take position when MACD turns on my direction in the lower timeframe.
