Registered: Sep 2012
09-14-12 12:29 AM
Quote from mcteague:
Like many novice traders, I am often distressed when the chart and indicators show completely different things depending on the time frame use. How do experienced traders resolve that? When for example there is a strong bearish trend in the daily, but your 10min says oversold.
Smaller time frames compose every movement witnessed in larger time frames. There is no such thing as "oversold." What's over sold in one time frame, can be overbought in another. You have to develop an understanding of the relative differences between price exhaustion in multiple time frame, in order to know what to expect price to do next.
Start with ATR. As a novice trader, you need to get up to speed on why ATR is important. It measures the true dynamic magnitude of each time frame, no matter how you slice your bars of data (candles). Whether you look at non-standard 3 minute bars, or 8 hour bars, ATR tells you what price is doing in each time frame regardless of the interval.
You must also develop an imagination for what most people don't yet understand: The Inverse ATR. That's simply the ATR to come. Instead of using trends in "price" to determine the next move, start trying to develop an understanding of the "trend" in magnitudes contained within each bar and its ATR value. This will help you see the likelihood of that 10 minute bar reaching a level of price exhaustion and its location within the daily bar's Inverse ATR value (that anticipated movement in the daily bar that has not yet happened).
You can develop a whole new array of indicators based on this one simple concept.