Using Complimentary Time Frames in your AnalysisYou can very easily muddy the picture of your analysis simply by using the wrong time frames with each other. If you view a time frame as zooming in and out rather than time, it can be easier to understand. For example if you were looking at an aerial view of your house and neighbourhood, it would be logical to have several pictures, one showing the entire yard, one showing where your house is situated on the city block you live and perhaps one showing where the block is in the suburb you live. It wouldn't help anyone to be zoomed right in showing 3 tiles on your roof, the next one looking at your yard plus 3 or 4 neighbours, and then the last one looking at the entire state. There is no complimentary relationship between them.
The same applies to charting and time frames. There are certain time frames that work well with each other and there are others that will constantly contradict each other. For example I have never seen anyone able to use the hourly and 30min charts together successfully, they are just too close to each other. Not saying it can't be done, just saying you are making it very difficult for yourself and will lose trades.
The best compliment is a factor of 4. Multiply and divide your selected time frame by 4 and the closest one is what you want to use. You aren't always going to get 4 though, for example you wouldn't find a 3min 40sec time frame to go with a 15min chart. Preferably then if you can't get 4 exactly you want slightly higher ratio than lower, that is 5 & 6 is better than 2 or 3. This leads to some pretty standard complimentary time frames as most charting packages have them available. For example, 2hr/30min/5min/1min work really well together having a ratio of 4 (2hr - 30min), 6 (30min-5min) and 5 (5min-1min). Another great combination is Monthly/Weekly/Daily/1hr/15min having a ratio of 4/5/6/4. This is my preferred one, weekly daily and hourly for some zoom. 15min when things get interesting.
The basic idea is to have the selected time frame that you want to trade from, for example if you are sniping you may chose the 5min, or if you are swing trading you may chose the hourly, which we'll use as the example. First step is to zoom out by your factor of 4(or closest) in this case the daily(6 hrs trade so ratio of 6 with your hrly chart). Does your larger TF support the direction you want to trade in?
If no then do not trade. End of story. If your larger TF does support your trade in multiple ways(no major resistance above, some support below, indications that it wants to head in the right direction etc) then move to your chosen time frame, in our case the hourly. Look for your entry criteria. When it looks like an entry is coming, you are on standby. Zoom down to your smaller time frame, in our case the 15min and look for your entry criteria to be met. Remember nothing is locked in until the bar is closed, so if you are on standby on the hourly and watching the 15min for an entry, and you are in the last 15 or 20mins of the hour, you may want to consider waiting for the hourly bar to close.
This method allows for a greater probability of success because you are taking a trade in the direction of
your longer term trend, and you maximise your entry position by zooming in closer.
What if you don't use complimentary time frames? As an extreme example you might be taking an entry from a 1min signal in the direction of the hourly chart and get smashed because the 15min was saying wait for a retrace.
Or you might be looking at a 15min chart and 30min chart thinking they are both in agreement,(but it's only a factor of 2) while your hourly has been saying no wait. Again you will lose out simply because you didn't use complementary time frames.
The basic rule of all technical analysis is, the higher the time frame the more weight it carries. If your larger time frame is saying it is going to drop and you have a perfect entry on your trading time frame, you might get lucky, but chances are you will lose as much as often as you don't. The whole idea is to remove the risky trades and only take the high probability ones. By using time frames correctly, you can increase your success rate.
(20min delay)