Below we have a 5 minute chart of Apple.
So we see a bit of a battle between bulls and bears above. The bulls are trying to break out above the channel on the open, but keeps getting denied, even on high relative volume. Observe the strong support level between $199 and $200, any tests of that level are denied on low volume.
That’s the price action we see on a 5-minute chart. A novice to intermediate trader might opt fade breakouts above that $206 level, or buy support around the $200 level. However, we’re not seeing the big picture. It’s important to put this 5-minute chart in the context of longer term price action. Doing so will give us more confidence in the levels we’re trying to trade.
Even going out to the hourly time frame can give us a different perspective. Below is an hourly chart of Apple during the same period.
Suddenly, those ‘failed breakouts’ have different context. While the initial impulse moves are being rejected, the stock is still making higher highs and higher lows, as marked by the arrows on the chart, meaning the uptrend is still intact.
Going even further out onto the daily chart, we can see that Apple has been in an uptrend for all of 2019. While not the most technically strong uptrend, it doesn’t play in your favor to try to fade moves within the uptrend: you’re not playing the probabilities.
Final Thoughts
I think the importance of analyzing markets on multiple time frames was made pretty clear in this article. If it does nothing else but keep you out of a few bad trades per year, it’s worth it.
To summarize:
- Confirm short-term setups and price action with longer time frames.
- Don’t get bogged down on one time frame, it will cloud your judgement.
- Use multiple time frames to check for long term support and resistance levels. Being aware of these can help you identify incoming volume when short term price action nears a vital level.