One of the most popular questions we get here at TCG is how we use time frame interactions to “set” higher lows, higher highs and all points in between. So, let’s breakdown time frames, how they interact, how to use them, but not to let them use you.
Oftentimes, when we’re looking at entering plays, we are essentially looking to enter a trade that is going to shift momentum. Either from a sideways trend to an uptrend, an uptrend to a downtrend or a downtrend to an uptrend. But this often gets confusing because an uptrend on one time frame can be a downtrend on another. Using these all in conjunction with each other, we can try to find entries that may go against very short term time frames, while allowing us to go WITH the trend on the larger (and hopefully more percentage move) time frame.
The rule of thumb we use here at TCG is a trend change 2-time frames down marks a temporary top or bottom in the one we are looking at. This would mean an hourly trend change would mark a temporary daily pivot, a 15 min trend change marks a 4-hour temporary pivot, a 5 min trend change for hourly, 2 min trend change for 2 min. How can we use this interaction?
Let’s say a stock broke out of a nice equilibrium on the hourly time frame, and we missed the initial move, and would like to buy an hourly higher low. First thing is first, we need to know when the hourly top is set. This would be marked by a 5 min trend change to the bears. Once that happened, we’d be looking for a 5 min trend change BACK to the bulls to mark the hourly higher low - since we are changing trend on two timeframes down. For best risk reward, we would watch for a 5 min bounce that gives enough space for a 5 min higher low to form, and bottom fish that entry. Ideally, we’d have it line up with some hourly moving averages or a Fibonacci extension to give some confluence in the trade.
Where do things get even more sticky? I often find when we’re only watching one time frame, we can get stuck in it. So, an hourly trend change to the bulls must mean a daily higher low right? Well, what if we are in a 4-hour equilibrium? What if we are in a tight daily equilibrium and there is no space between the hourly trend change and the lower high. It is in these instances where we have to ask ourselves what the overarching time frame is. What is the time frame that demands the most attention because it gives the most clarity. When things are trending, then usually that will be fairly clear. But when things are sideways or choppy, then time frames and trend changes will usually give us a lot of false signals. Similar to how moving averages work less well and give false support/resistance when we are sideways oscillating around them, vs when they fan out due to volatility and then can act as supports and resistances to bounce off of.
The first step then, is to ask yourself what is the main time frame that gives the most amount of clarity. Then to ask yourself, given that time frame, what is the MOST likely scenario (lower high, higher low, breakout etc). Once you have determined the overarching time frame of the trade, then you can zoom in 2 lower to help find an entry that is in line with the original play.