Multiple Timeframes

[jasont 10]

I wanted to discuss this as it is something I have found to be used by just about every successful trader I have conversed with yet is something not extensively spoken about. At least I haven’t seen a solid thread about it thus far in TL so I thought I would get the ball rolling.

 

Obviously we all don’t trade the same so I welcome all the traders who use different time frames to post here (I know numerous from the forum) and explain their ideas about market fractals. I will start and get the ball rolling but I am actually more interested to see the diverse thoughts and beliefs on the topic.

 

For me trading market fractals is based upon ranges and breakouts. Majority of the time the market rises, forms a range, breaks out of the range and declines. It then forms another range, breaks out of the range and rises again. This is best understood by picturing waves in ones mind.

 

Of course there are times when the market reverses without a range but I don’t trade those so will leave it to someone else to talk about.

 

Why are different timeframes based on ranges and breakouts? This actually took me longer than it probably should have to figure out. At any one time when the market is ranging, it is breaking out of a different timeframe. The same is applied to any one time when the market is breaking out, it is ranging in a different timeframe.

 

I have posted a couple of examples below with annotations that should help understand this concept. The magnitude of importance of this concept managed to elude me for a long time because it wasn’t explained to me in black and white and was something I learnt through extensive screen time. Of course traders always said, “don’t trade with just one timeframe, keep an eye on numerous ones”. Heck if they had of told me that reversals are breakouts it would have made life much easier.

 

So going into further detail… Many successful traders advocate using at least 3 timeframes to trade from. Do I need to be so obvious to state a small, middle and larger timeframe? So why 3 and not 5 or 10? Well psychologically we tend to like things in 3’s but some traders might use more.

 

I personally use 5 timeframes and 2 different volume charts. Made up of 5 second, 1 minute, 5 minute, 15 minute and daily charts as well as 1000 volume and 50,000 volume charts. Are these timeframes better than others, no. They are just ones I like. I use a few more than others, some I just glance at a few times per day. Others I watch constantly.

 

Why is this important? Well at any one time the 15 minute chart could be ranging but the 5 minute chart is rising yet the 1 minute chart is falling. This sounds confusing if you think about them all at once doing this but it is thought of in comparison to their past movement.

 

So the 15 minute chart could be ranging within 15 points but the 5 minute chart is in an uptrend to the high of the 15 minute range. At the same time we are seeing a standard pullback in that 5 minute uptrend which is seen by the 1 minute chart falling.

 

New traders may be reading this scratching their heads just as I did prior to understanding the concept. I do suggest after reading this post and hopefully others in this thread, that you go dwell on this a little and let it sink in.

 

Let’s keep going with the above example. One could be trading all three scenarios at once if they were aware of them all. I don’t advocate doing such a thing but it is possible. One who isn’t aware of these scenarios is pretty much lost.

 

I say this because if one is trading the 1 minute chart decline, if they don’t realise they are in a 5 minute uptrend they may not look to take profits at the first sign of continuation of the 5 minute trend. The trader riding the 5 minute uptrend may not realize there is resistance at the 15 minute range high and not be ready to reverse his position should it be respected. At the same time he may not know to add to his position on a solid break of that range high.

 

Hopefully those new to this market fractals concept has had a light bulb go off in regards to reversals and breakouts. A reversal is in fact a breakout in a smaller time frame. Let’s say the 5 minute market has hit its high and stays there for 3 bars or 15 minutes. On a 1 minute chart the market has likely made a range at the high. A breakout to the downside on the 1 minute chart is not represented as a breakout on the 5 minute chart. In fact the last low could be 6 points away from the top yet the 1 minute range breakout could be 2.5 points from the top.

 

Therefore it doesn’t make sense when traders say you can’t trade breakouts in such and such market. Many traders say trading breakouts in the ES market is not a good strategy, well they probably just don’t realize they are most likely trading breakouts on a smaller time frame but don’t even realize it.

 

I made this post a bit longer than I expected but I do hope some other traders share their expertise in trading different time frames as it is a valuable concept for many to learn and understand.

[DbPhoenix 42]

A reversal is in fact a breakout in a smaller time frame.

 

Would appreciate clarification on this point as a reversal and a breakout are two entirely different things.

[stanlyd 10]

Would appreciate clarification on this point as a reversal and a breakout are two entirely different things.

 

I think what he means is that lets saya a reversal of a LARGER timeframe can be looked at also as a breakout in a smaller timeframe(if the smaller timeframe is in fact making lh's and ll's,then the larger timeframe reverses, then it makes the smaller timeframe "breakout" lower) if your looking at it as fractals. Makes sense?

 

great topic by the way.

[DbPhoenix 42]

I think what he means is that lets saya a reversal of a LARGER timeframe can be looked at also as a breakout in a smaller timeframe(if the smaller timeframe is in fact making lh's and ll's,then the larger timeframe reverses, then it makes the smaller timeframe "breakout" lower) if your looking at it as fractals. Makes sense?

 

great topic by the way.

 

That seemed to be what he meant, but that's not what a "breakout" is. As for "fractals", I know a lot of traders like to apply that word to the market, but I suspect they're using it incorrectly.

 

In any case, I don't want to derail the thread. If the definitions of "reversal" and "breakout" are not important to the subject, then set all this aside and carry on.

[stanlyd 10]

I agree, all these terms the terms are thrown around a lot. But more important then the meaning of the word is that one understands the point.I was saying in the chat the other day about having a hard time explaining "fractal nature of the markets"

It can get really hairy and we could start getting mathmatically complicated, but unless your into that(which I kinda am) that could be boring as well as confusing.

This being said I think having a general understanding of the point of fractals will help the timeframe discussion tremedously. So I tried to explain in a few times in terms of music that may help someone.

 

Lets say we are counting beats . Like put on any rock song and count it out. You should notice in rock music it's almost always a pattern of

1,2,3,4 2,2,3,4, 3,2,3,4 4,2,3,4

 

well what if we wants to zoom out (fractalish part) and count this using only the bold numbers above. So I take out the BOLD numbers from above and write them out and I again have 1,2,3,4. So if your still with me you can see that inside of the count of 1,2,3,4, we have severals patterns of 1,2,3,4

Make sense?

How is this in terms of trading. Well lets say a 15 minutes chart. We can think of it simply as 15 minute chart, or think of it as five 3 minute charts. (5*3=15)

So if your actually looking at targets and support/res levels say on the 15 minute chart, zoom in on your timeframe by switching to watch price in a 3 minute chart to help you navigate around the "noise".

Well anyway maybe this will help someone.

[Hlm 10]

As for "fractals", I know a lot of traders like to apply that word to the market, but I suspect they're using it incorrectly.

Well since that word will probably be used a lot, we should probably get that definition defined before going any further.

 

Some definitions from dictionary.com

 

a geometrical or physical structure having an irregular or fragmented shape at all scales of measurement between a greatest and smallest scale such that certain mathematical or physical properties of the structure, as the perimeter of a curve or the flow rate in a porous medium, behave as if the dimensions of the structure (fractal dimensions) are greater than the spatial dimensions.

 

a geometric pattern that is repeated at every scale and so cannot be represented by classical geometry

 

A complex geometric pattern exhibiting self-similarity in that small details of its structure viewed at any scale repeat elements of the overall pattern.

 

Contraction of “fractional dimension.” This is a term used by mathematicians to describe certain geometrical structures whose shape appears to be the same regardless of the level of magnification used to view them. A standard example is a seacoast, which looks roughly the same whether viewed from a satellite or an airplane, on foot, or under a magnifying glass. Many natural shapes approximate fractals, and they are widely used to produce images in television and movies.

 

 

 

How would you define it DbPhoenix?

[DbPhoenix 42]

Well, I don't see the market as being fractal since it's missing the self-similarity element. And I disagree that there is any such thing as "noise". But, as I said, all this may be entirely off-topic.

[atto 20]

My understanding of fractal markets is that technical analysis -- in the forms of MP, Wyckoff, "traditional" price patterns, etc -- are not time dependent. That is, a setup on a daily is valid as is on a 1m. Thus, someone not wanting to fight "the trend" may examine several timeframes to see how price is moving.

 

I've seen people use fractals as repeating / copying patterns (ie, self similar), but I wouldn't agree with that. My hunch is the previous posters' definition if consistent with my own (however misapplied).

[stanlyd 10]

Its important I think they we don't get caught up in definitions of the words here but more in concept. Fractal is a loaded word and noise is the same. Just words. If we go on words we will get tripped up. It's all relative for an understanding of how the market is flows.

Would we agree here that the market looks to discover new area, test, then decide to retreat or look again new price? Anyone not agree this is happneing over and over?

[Hlm 10]

Well, I don't see the market as being fractal since it's missing the self-similarity element. And I disagree that there is any such thing as "noise". But, as I said, all this may be entirely off-topic.

Curious, how is the market not self-similarity? Maybe we have a different definition of that. Also, the concept of fractals agrees that there is no such thing as "noise".

[CandleWhisperer 10]

Well, I don't see the market as being fractal since it's missing the self-similarity element. And I disagree that there is any such thing as "noise". But, as I said, all this may be entirely off-topic.

 

Markets are in fact self-similar. Take 5 charts from 5 different timeframes. Remove the time scale and the price scale. You will then be hard pressed to determine what timeframe is what. On the other hand, the pattern of HHs and LLs will be seen in some fashion on all charts. Particular price patterns, like Head and shoulders patterns, will be seen on all charts. Of course, it is possible that the duration of a particular chart is not showing that pattern at that time. But the fact remains that is could. You well see resistance/support levels consistent on all charts.

 

Therein lies the self-similarity element of a market's fractal nature.

[OAC 10]

Have you guys ever heard of this illustration of how a flapping of a butterfly's wings somewhere down in Brazil created a tiny breeze, that through a chain of event, becomes a horrific tornado in Texas ?

I wonder if this is Wyckoff's principle of cause and effect carried to the highest fractal velocity ?

[atto 20]

Db may be referring to this, which I don't think has much merrit (taken from a service that treats fractals as copying patterns, name edited out):

 

[Hlm 10]

I guess I should be a little more specific. Of course the market is not one perfect fractal. It's obvious that past movement does not have to predict future. Let's not get stuck on the absolutes. However, one who takes a look at the market can see in general....

 

Trend/Cycle = L H HL HH

 

The move between L and H as well as HL and HH is created with smaller trends/cycles of L H HL HH...

 

The moves between the L and H as well as HL and HH are created with L H HL HH...

 

...and so on. Is this not the same pattern within a pattern within a pattern?

 

This is a term used by mathematicians to describe certain geometrical structures whose shape appears to be the same regardless of the level of magnification used to view them. A standard example is a seacoast, which looks roughly the same whether viewed from a satellite or an airplane, on foot, or under a magnifying glass.

[stanlyd 10]

Is this not the same pattern within a pattern within a pattern?

Thats what I was trying to get at earlier. That market discovers price, tests,retreats,discover,support /res the whole nine yards so on and so forth. What I was trying to get at is that this can happens on every tf chart you look. To me this makes it a fractal approach worth investigating. The question then to ask one self from is then, "what timeframe do I trade?"

 

So that question then gets leads one into money management, capital, goals, trading plan focus etc, in order to figure out what timeframe would be best suitable .

Edited January 4, 2009 by stanlyd

[DbPhoenix 42]

Markets are in fact self-similar. Take 5 charts from 5 different timeframes. Remove the time scale and the price scale. You will then be hard pressed to determine what timeframe is what. On the other hand, the pattern of HHs and LLs will be seen in some fashion on all charts. Particular price patterns, like Head and shoulders patterns, will be seen on all charts. Of course, it is possible that the duration of a particular chart is not showing that pattern at that time. But the fact remains that is could. You well see resistance/support levels consistent on all charts.

 

Therein lies the self-similarity element of a market's fractal nature.

 

Price may move up and down and sideways with all bar intervals in all timeframes, but that doesn't satisfy the self-similarity criterion, at least in any way that would aid in making a trading decision.

[stanlyd 10]

at least in any way that would aid in making a trading decision.

I respectfully disagree as each person has a criteria different from the next in terms of a decision process.

As for what has proven most valuable a lesson taken from my trading is the attributes gained in learning,patterns,science,psychology, happiness,pain,social skills,confidence,power,humility, (the list is still growing), has been that one can never assess for another what is and what is not "valid" in a decision(in regards to trading or outside of trading).

The above stated list and more, are still to this day developing from a passion for the markets.However the knowledge gained from study has proven most powerfull over and over in situations applied to my "longer term" lifestyles.

Such a larger "fractal" picture then my wildest imagination could have prepared for as I studied my first chart.

[OAC 10]

Price may move up and down and sideways with all bar intervals in all timeframes, but that doesn't satisfy the self-similarity criterion, at least in any way that would aid in making a trading decision.

We are in the definition stage, there is no need to talk about trading decision yet. DbPhoenix, can you name anything that is self-similar in our physical universe. BTW, you can argue that each Hydrogen atom is unique, can you ?

[DbPhoenix 42]

I respectfully disagree as each person has a criteria different from the next in terms of a decision process.

As for what has proven most valuable a lesson taken from my trading is the attributes gained in learning,patterns,science,psychology, happiness,pain,social skills,confidence,power,humility, (the list is still growing), has been that one can never assess for another what is and what is not "valid" in a decision(in regards to trading or outside of trading).

 

I'm not deciding for anyone what is or is not valid. My impression upon reading the OP was that jason was looking for practical suggestions on using multiple timeframes to make trading decisions, which is why I made my first post. If anyone can provide a practical application of an assertion that the market is fractal (however he might define the term), then this would be a good time to begin.

 

On the other hand, if I misunderstood the thrust of the thread, my apologies.

Edited January 5, 2009 by DbPhoenix

[stanlyd 10]

a more practical example in terms of timeframes. Here is a simple chart of EBAY. So what we have here is two regression lines drawn. One is a regression of the current trend to the present(blue). One that shows a regression line of the last swing move down starting at 10:27 on 12/31.

Let's now consider both of these swing are of different timeframes work. So, our current swing is up, so say a trade long at 7:43ish(time). Now where do we target? Well, we could start with a target of where these to swings(timeframe traders) meet up. So note the purple and blue regression lines crossing around 14.40. Now at this point I would expect a bit of a battle, maybe one more attempt up and then a pullback to test the older timeframe(purple). so ideally we would could still be long and also be looking at a short at this point down to around 14.58 the tip of the purple timeframe.

How could I want to be long and short at same time? Because it just depends on what timeframe your trading. In this example we traded the blue line long, but we can are trading the other timeframe short ,the purple line.

 

On the second chart posted which is just a smaller tic size of the same chart. We get a clearer picture of the "battle" as the timeframes meet one another.

This is I think A good way to start looking at markets and I picked EBAY at random. You can look at any chart the same. Any timeframe chart for that matter in the same way .

Of coarse it's much easier to get more in to detail live then in a forum but hopefully it's helps some.

Edited January 5, 2009 by stanlyd

[jasont 10]

This is a different start to the topic than I imagined. I was actually hoping traders would have spent more time talking about their own concepts of market fractals or multiple time frame trading than get hung up on my concepts. It isn't a black and white area which is why it would be good to see many different points of view.

 

Db, what I am saying in regards to a reversal being a breakout, at any one time a larger time frame appears to show a reversal, there is a range built at the top/bottom in a smaller time frame. This could be on a single tick chart, a 5 second chart, a 15 minute chart if one was trading weekly possibly. It doesn't really matter.

 

I guess we could sit here all day debating what a range is as well as what a breakout is. My definition of a breakout is a move out of a range if the market is ranging, or a move beneath the last swing low if it is down trending and a move above the last swing high if it is up trending. They may not be textbook explanations but to me they are the points that are needed to make the market go beyond sideways.

 

I didn't go into detail on how I trade this exactly as I was hoping it would become a concept thread as the concept is much more important than how I or any other trader trades it exactly.

[OAC 10]

This is a different start to the topic than I imagined. I was actually hoping traders would have spent more time talking about their own concepts of market fractals or multiple time frame trading than get hung up on my concepts. It isn't a black and white area which is why it would be good to see many different points of view.

 

 

Sorry, exactly 40 minutes before you started this thread. Hlm and I started a conversation exactly on this topic. http://www.traderslaboratory.com/forums/34/all-you-need-is-a-chart-3843-12.html

I think both of us thought this would be a continuation of that thread.

Sorry again, I think both of us will bow out now.

[VolumeJedi 10]

VSA emphasizes the use of multiple timeframes. Personally, I don't like looking at multiple charts to see what is going on in each timeframe. However, I do think that knowing where key levels of support or resistance are formed on higher timeframes is important.

 

There is no point in getting caught up in "is this a break out on the 5 min or just a move within the range on the 15 min". As it clearly can be both and both can be tradable. Having an idea of where the Hold Up Prices or Focus Lines are is the more immediate point. Is price moving towards the second standard deviation of a weekly (5 day) VWAP on the 4 min chart? Is volume decreasing as price falls towards the low of the monthly chart range? Such questions are the relevant ones and you only need one chart to trade it. Once you put in the lines or areas at the start of the day for example. Some might even have software capable of doing it automatically and updating in real-time (i.e. dynamic Hups).

 

I wont get into the VSA stuff here, but here is a picture of what I am talking about. The first pic shows a short trade set up at SDw-1. This is the first standard deviation of a 2 week VWAP. (higher timeframe). The Profit target would be a gap fill that takes us to SDw-2: the second standard deviation of that weekly VWAP. The next chart shows the result. The market statistics boys and girls will see an entry (short) at the Daily(yesterday's) VWAP labeled Shapiro Effect.

 

The point here, is that only one chart is used to trade and the various HUPs come from different timeframes.

[jasont 10]

Sorry, exactly 40 minutes before you started this thread. Hlm and I started a conversation exactly on this topic. http://www.traderslaboratory.com/for...t-3843-12.html

I think both of us thought this would be a continuation of that thread.

Sorry again, I think both of us will bow out now.

 

I am actually disappointed I didn't read about Hlm's intentions of creating a thread on the topic himself prior to posting this thread. I believe Hlm can do a better job than myself in explaining market his application of Market Fractals. In fact the discussion you two had in the thread is probably more along the lines of what I hoped might have developed here.

 

PS. I am more than happy to let this one die if Hlm wants to create another one.

[OAC 10]

Interesting, perhaps synchronicity is at work .