Examine the daily chart. Is the asset trading above a rising 20-day and 50-day Simple Moving Average (SMA)? If yes, the asset is in Stage 2, and you should look exclusively for buy (long) opportunities. Step 2: Locate the Pullback
One of the biggest benefits of this approach is that it helps you avoid being misled by market "noise." When your timeframes are aligned, you have multiple confirmations of market intent. As one strategy notes, the principle is simple: strength in numbers.
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Is the asset trading above its rising 20-day moving average? Examine the daily chart
Calculate your share size based on the distance between your entry price and your stop-loss. Never risk more than 1% to 2% of your total account equity on a single trade.
Note the closest historical resistance and support levels on the daily chart.
: Unlike many technical books, it uses high-quality color charts to make complex patterns easily relatable to a live trading screen. Target Audience Step 2: Locate the Pullback One of the
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The trend on the higher timeframe (e.g., Weekly/Daily) takes precedence over lower timeframes.
Once you establish that the daily trend is bullish and resting on key support, zoom down to the 60-minute chart. Look for a short-term consolidation pattern, such as a bull flag or a small descending wedge. This consolidation represents a temporary pause where short-term sellers are exhausting their supply. Step 4: Execute on the 5-Minute Chart Is the asset trading above its rising 20-day moving average
A single time frame chart often gives an incomplete market perspective. A 5-minute chart may show an uptrend, while the daily chart reveals a dominant downtrend. Without context, traders risk entering trades against the larger trend. Multiple time frame analysis addresses this by systematically reviewing the same asset across different chart intervals to align risk and direction.
Find a stock where the Daily chart is trading above a rising 50-day SMA (Stage 2 Uptrend).
A stock should pullback on lower volume, showing that institutional sellers are not actively dumping the stock.