Timeframes – Multiple timeframes are the key to successful trading. Many students are taught only to look at the daily (swing) or weekly (position) charts for the setup, entry, and stop management. This is not good. The ultimate edge is scanning multiple timeframes, traders using this technique will have a 5 times advantage over traders using the basic timeframes. Below are the different trading styles and the multiple timeframes they use:

Position Trading uses a monthly confirmation chart, a weekly setup chart, and a daily chart to manage the position.
Swing Trading uses a weekly confirmation chart, a daily setup chart, and an hourly chart to manage the position.
Day Trading uses a daily confirmation chart, an hourly setup chart, and a fifteen minute chart to manage the position.

When scanning trade seeker you will only need to scan the Setup timeframe charts. After narrowing your list of candidates, you will next want to scan the Confirmation chart. The Confirmation will come from the next higher timeframe, i.e. Setup: Daily and Confirmation: Weekly. The setup may look good on the daily, but the confirmation on the weekly may be too extended and in need of a pullback before going higher. In the previous example, the weekly chart would lower the odds of a successful trade. After the candidates have past on both the Setup and Confirmation timeframes, we will now look for an Entry and Stop Management. This process will be handled on the next lower timeframe below the Setup chart, i.e. Setup: Daily and Entry: 60 Min. Look for Entry on Strength (Long) or Weakness (Short). Stop Management will be the Swing Lows (Long) or Swing Highs (Short). Remember, that not looking at the next lower time frame for detail is like a doctor trying to fix a broken arm without an X-ray, the lower timeframe allows you to see what is going on beneath the surface. This statement is very important for students to remember.

      2. SCANS – When using Trade Seeker to scan, the majority of the Setup Timeframes will be the Daily Charts; hence we are scanning for Swing Trade Setups. The following items are used to find high odds and probability setups: Support/Resistance – All charts have one thing in common repeating levels of support/resistance and patterns. These are both levels of human emotions. Remember. As a technical trader, we are trading people and not companies. Support/Resistance will be the highs/lows of human emotions, greed/fear. Support/Resistance as a broad category can be placed into only two categories: MAJOR and MINOR. Let us begin with MINOR Support/Resistance. MINOR support or resistance is a line with only (1) retest or less. The line is formed by the initial strike and then retested from either the resistance or support sides. The side of the retest does not matter. Most traders believe that the line must be retested from the same side as the initial strike, this is false, and the retest can be from either side.

      Major support or resistance will be the same as minor with the (2) or more retest of the same line. The repeated retests of this line confirm the value to traders as they now gather to buy and sell at this point. Remember, when scanning you can immediately see the minor support/resistance lines, but you should look back to the left of the chart several weeks to find the major support/resistance lines. The following categories will be subsets of support and resistance. It is very important to remember that their value as support/resistance will be based on whether they are MINOR or MAJOR. Moving Averages – MA’s are great levels of minor/major support/resistance, but are also used as an indictor of trend direction and speed (momentum). Moving averages can be separated into three categories: Short Term (fast), Intermediate (middle), or Long Term (slow). Short Term MA’s are the 13 EMA and the 20 SMA. The 13 EMA stands for exponential moving average. The exponential is a calculation that places more emphasis on the last five day’s price action. The 20 SMA (simple moving average) places equal weight on all 20 day’s price action. Day and Swing traders love these MA’s because they use them as buying/selling points when they are long or short. Remember, the more retests of these moving averages the greater the value as support/resistance. Intermediate Term MA is the 50 SMA. The 50 (Simple Moving Average) is slower due to the equal weight being spread over the previous 50 day’s of price action. Pull backs to the 50 SMA will often see a bounce. This MA is liked by Swing, Position, and Smaller Institutional Traders. The 50 will often divide stocks in an uptrend from stocks in a downtrend on any time frame. Long Term MA is the 200 SMA. The 200 is the slowest due to the MA being weighted over the previous 200 day’s price action. This MA is well watched by the large institutional investors of Wall Street. They use this MA as a wholesale buying point and a retail selling point for large blocks of stock in bull/bear markets. The 200 and 50 MA’s are critical mass sentiment indicators of Wall Street. The price action will usually see a bounce when contacting the 200 MA from either direction. The question becomes when the price action finally breaks above or below this MA. MA Alignment is often a category overlooked by many traders. It refers to the position of each moving average category to specify an uptrend or a downtrend. In an uptrend, the price action should be above the MA’s. The Short Term should be above the Intermediate Term which is above the Long Term. In a downtrend, the price action should be below the MA’s. The Short Term should be below the Intermediate Term which is below the Long Term. These can also be used for great entries on the smaller time frames when buying (long) or selling (short). The most critical is when the 50 SMA and 200 SMA are crossing on either timeframe; this most often will signal the beginning of an end to the current trend. NOTE: It is important that the moving averages as support/resistance mean more on the higher timeframes. Trend Lines - After identifying the direction of the trend using the moving averages you should visualize or draw your trend lines. These are drawn by connecting the swing highs and lows. It is important to remember which trend line to draw first in Up Trends or Down Trends. Note: The old stock market saying “Buy Low and Sell High”. This will help you when drawing your trend lines. When we are in an uptrend the bottom line connecting the swing lows should be drawn first. Why you might ask? The action during an up market is buying low. We want to buy the stock at a WHOLESALE level. The best buying opportunity is on the BOTTOM TREND LINE. The BOTTOM TREND LINE IS KNOWN AS WHOLESALE. After connecting the swing lows to get your WHOLESALE SUPPORT TREND LINE, you will want to draw a parallel line connecting the swing highs to get your upper trend line. The action during a down trend is selling short at RETAIL RESISTANCE. Hence, in a downtrend we will draw our upper trend line connecting the LOWER HIGHS. These lower highs will form a RETAIL RESISTANCE LINE that we will want to use an entry opportunities when selling short. Remember, that these WHOLESALE AND RETAIL trend lines will be in two categories of Support/Resistance which is MAJOR or MINOR. Some of the better buying and selling entries come from these trend lines when combined with Moving Averages on different time frames. Trend lines are formed by the Higher Highs and Higher Lows in an uptrend and the Lower Highs and Lower Lows in a downtrend. This will be important when we start learning about reversal patterns. Swing Highs/Lows – Swing Highs/Lows just as with trend lines create the best support/resistance lines. They are points at which sentiment reverses, better yet they are the extremes of emotions where old buyers temporarily become new sellers and vice versa. The formations of swing lows can be thought of as a “kid on a swing” the lows are produced in this manner. The highs are the top side of the low, or can be thought of by dividing a circle in half.

      These highs and lows are formed as price action peaks (highs) or bottoms (lows) then reverses. The lows are where buying begins and highs are where selling begins. Thinking about these concepts is very important in support/resistance. When scanning, they can help you identify the minor and major support/resistance lines. You may find an entry point on the daily chart that looks like a minor support line, but after moving to the left of the chart several weeks it now becomes a major support/resistance line. One very important thing to remember is that resistance minor or major once broken will now become support. Often, after a line of resistance is broken, the chart will have a new swing high. When the swing high reverse, the new swing low will often find support at the old resistance line. The opposite is true, prior support will now become new resistance. Remember that swing highs/lows are nothing more than people’s emotional extremes. A Downtrend is a cycle of Lower Highs/Lows and an Uptrend is a cycle of Higher Highs/Lows. The number of candles in the formation of these highs and lows will help you in determining the value they play in support/resistance. A swing low of only (4) candle would have less value than a swing low of (16) candle. A great example of this would be the swing low produced by Microsoft (MSFT) from 4/23/04 to 6/16/04. This took almost (2) months to produce and has become a major level of support/resistance. GAPS – The most highly overlooked support/resistance points are gaps. Gaps are created by two events: (1) News or (2) Specialist Driven. The Specialist driven gaps occur at the open and usually fill intra-day. News driven gaps are created by events that excite the greed/fear emotions in traders. When they occur two specific support /resistance lines are created (1) upper and (2) lower. These lines resemble a window with an upper and lower window seal. These lines represent great support/resistance from the direction of the price action. Once most gaps are filled, the price action resumes in the direction of the gap. The longer a gap remains unfilled the stronger the support/resistance lines will become. Gaps usually create a major support/resistance line that may last several weeks up to years depending upon the timeframe. Gaps are also great sources for high odds intra-day trades. If we use the gap concept of filling, we may watch the gap for the first 15 to 30 minutes of trading. This may yield a long or short day trade depending upon the stocks pattern during the open.

     

      The notes contained on this page are in large part a collaboration with the Wealth Intelligence Academy and Teach Me To Trade, Inc. If the development of any uncertainty arises due to the reading of these notes then it is highly recommended that you consult a professional for clarification before you place trades based on the information on this site. Feel free to contact Mike at: (812) 344-4102 and he will do whatever he can to help your transition into trading the markets effectively and efficiently.

Contact Mike at mjkleinhenz@gmail.com or mkleinhenz@kaylinestrategies.com