Multiple time frames

A multiple time-frame approach can be used when a support or resistance zone is established for setting up a trade. The following examples use 30- minute bars to define the support and resistance zones and five-minute bars for trade signals.

After the market forms a support zone on the higher (longer-term) time frame, wait for the market to trade back into the support zone from the higher time frame, then drop to the lower (shorter-term) timeframe and wait for an oscillator to signal the momentum is turning up to go long. Your maximum risk should be no more than a penetration of the lower end of the support zone.

Similarly, when a resistance zone forms on the higher time frame, move to a lower time frame and wait for the price to re-enter the resistance zone. Go short when an oscillator signals price momentum is turning down. The maximum risk is a breakout of the upper end of the resistance zone.

It is a five-minute chart (black bars) of the period with each of the 30-minute bars (green boxes) encapsulating the five-minute bars.

The oscillator used in the setup is the 14-bar relative strength index (RSI), which is applied to the five minute bars (in this case, 50 is subtracted from the raw RSI readings so the indicator ranges between 50 and -50 instead of the usual zero to 100). Negative values indicate oversold conditions and positive values designate overbought conditions.

When the five-minute bars trade into the 30-minute support zone, plot a down trendline along the peaks of the RSI. A buy signal occurs when the RSI closes above the down trendline(up arrow).

It shows five-minute price bars encapsulated by the 30-minute bars and the first pivot high. The resistance zone used bar 2’s close (based on the 30-minute chart) for the lower end of the resistance zone.

For the sell setup, wait for the market to form a resistance zone and then for price to move back into the resistance zone. Then plot an uptrend line along the bottoms of the RSI. A break of this trendline signals that price momentum is turning down. The maximum risk on this trade is a breakout above the upper side of the resistance zone.

It shows the last two pivot highs. The same setup was used, based on the five minute price action trading in the resistance zone plotted from the 30- minute bars. A break of the uptrend line plotted on the RSI indicates price momentum is turning down. The RSI peaked at the same level for both 30- minute pivot highs.