"Drilling Down" timeframes

[trader273]

One of the more interesting things to do with candle charts ( i guess all charts for that matter) is the ability to start with a high time frame and work your way down. What does this accomplish? It allows a trader to see a macro perspective as well as a micro perspective. Example, you see a support level on the daily chart, now you have to decide if that support level will be held or broken. One could wait till the end of the day and make the decision there, but waiting a whole day could be costly. It could increase your Risk-Reward and that could keep you out of some profitable trades- all because you are waiting for the completion of the day. Another way to do it, is to know a market is coming near support and then you "Drill down" to smaller time frames to find candle patterns at that support level. This will allow you to enter before the end of the day, all helping your risk-reward. The draw back is that by the end of the day, perhaps, the support line is broken. If just using the daily no trade would take place, but if you drill down a trade is placed and a loss could be taken. Its a give and take.

Lets take a real-life example. Currently crude oil (CL) is above resistance. Is it going to stay above it? Your guess is as good as mine. Just looking at the weekly, looks bullish enough, but still a couple days left. So we drill down to the daily chart. Looks bullish enough, maybe a spinning top forming, but nonetheless still bullish. So we go down to a 60-min chart. This is where things don't look as bullish. Previous day's high is now a good resistance level. But also formed a nice hammer around 79.20 ( about where the old resistance was--change of polarity). So looks like on the 60 we are about in a range, not exactly bullish. So lets look at the 30. Pretty much the same thing as the 60. If it can get below that 79.20 level longs could be in trouble.

The weekly and daily charts could be setting up a bull trap. These are very strong resistance levels. I would be careful of holding longs if this new support is broken. If its broken, or your anaysis says it could, drilling down time frames could give you a good entry with excellent risk-reward.

[torero]

Great post! That's exactly how I start my day as well. Work from the monthly to daily to find all S/R areas and patterns at work, all the way down to the timeframe I'll be trading. It's great to get the big picture so you can find where volume buyers and sellers are located to prepare for them.

[Nick1984]

I use the longer time frame charts (daily and sometimes weekly/monthly) to find key S/R levels based on the pivots for that time frame as well as visual levels and I note these down. Sometimes I find that most of them don't come into play but it's still handy to know.

I like to take trades around key price levels only as thats where I find most momentum is built through volume so these levels become important. The smaller time frame charts (55t, 89t, 2min) help me to time an entry as a pull back based on the action of a longer time frame chart (233t or 5 min). Drilling down as you call it is a great way of helping to time an entry. Trading should be kept as simple as posible I reckon

[Reaver]

Good post man.

[Richard III]

Trader 273,
Interesting post and timely. I am reading John L. Person's book, 'Candlestick and Pivot Point'. Your approach appears to fit into his methodology and help me gain some valuable insight.
I am assuming you are using pattern based support and resistance rather than pivot point calculations. I wonder if there are valid parallels between the two. might be something useful here.
Richard III