Ask The Trader
Wednesday, March 28, 2001
Time Periods and Indicators
To analyze any stock technically, what is the best time frame to use - monthly, weekly, daily and or 60/30/15 minutes charts? I always check the monthly chart to see the overall stock trend, weekly to tell me where the stock is, and daily will tell me in which direction stock is trending currently. The 60-30-15-5-1 minute chart will give me entry and exit points. I would like to hear the expert strategy on this issue.
I am very familiar with all technical indicators. I use MACD, MOMENTUM, OBV and STOCHASTICS. Is this the best combination for any stock strategy?
It sounds like you have all the bases covered! There is a key point that I would like to make, however, in choosing which charts are appropriate to look at when analyzing stocks. Not knowing whether you buy stocks as an investment (long-term) or as a trade (short-term), I will cover both ends of the spectrum.
As a long-term investor (holding periods of between a few months to years) it is paramount that you start with the long-term charts, like you mentioned in your question. The monthly and the weekly chart will telegraph the trend much better than the daily chart and will also make key reversal patterns much more apparent. By reversal patterns I mean double tops and bottoms and triangle patterns. In addition, these charts can give weekly and monthly reversals where, for instance, a new weekly high is followed by a close below the previous week's close. This is the equivalent of a key reversal day on a daily chart except that it carries a great deal more significance on the long-term charts. The daily chart will then give you your entry and exit points. No need to look at the minute charts in this instance, the price swings will just be distracting.
As a trader (day trades and swing trades), you don't want to get bogged down with the long-term charts because if you do, you'll always find a reason not to trade. Moreover, these long-term charts are filtering out the "noise" that you are ultimately placing bets on as a trader.
When trading, you want to focus upon the daily first, then the 60, 15 and 5-minute charts. Here is also where your indicators come into play. I generally don't use more than two at a time; otherwise you will get conflicting information and will get false buy signals. The momentum and OBV indicators work best for longer-term trade entries and should be used in swing trades (few days to a week or more). My favorites for short-term entries (a couple days at most) are the stochastic and the MACD. One caveat here, if the stochastic is swinging around wildly due to very volatile price action, it looses its effectiveness as a predictor of direction. The MACD and the stochastic can also be used as additional conformation (if it makes you more comfortable) to the OBV and the momentum indicators when swing trading.
Good Luck and Have a Profitable Trading Day
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