Multiple Time Frames. What means Own, Next and Highest?
"Although multiple time frame techniques have become more visible, the most robust approach has been taken by Robert Krausz. In thinking out the use of multiple time frames it is necessary to understand that you cannot substitute a 10-period moving average of 1-hour bars with a 40-period moving average of 15-minute bars. Similarly, you cannot substitute a 10-week moving average with a 50-day moving average. It seems natural to think that any two trends covering the same time span will give the same results, but that is not the case. Although we can average many data points, we cannot get rid of all the noise; fewer data points over the same time span will always yield a smother result. Therefore, the use of hourly, daily, and weekly time periods – multiple time frames – gives a much different picture of the market than simply using three different moving averages based on the same data. It is much easier to see the major trend using weekly data, find the short-term direction on daily data, and time your entry using hourly bars."– Perry Kaufman, Trading Systems and Methods – Third Edition. For the full text click here.
That is why in the Fibonacci Trader software you have 3 time frames when you create a chart.
The Create Chart window, ask for 3 time frames,
the program will use these 3 time frames to plot indicators and others
tools.
The basic idea is to use the NEXT and HIGHEST time periods as a trend
direction to trade.
On the indicators edit window you will have the option to use one of these 3 time frames on the selected indicator.
In the previous chart we added a simple moving average to it. Note that the chart is a AUDAD 60-D-W, that means a OWN period 60 minutes a NEXT period Daily and a HIGHEST period Weekly. Note also that the edit indicator window of the moving average has for the parameter "Period" the value "O", that means the OWN period (in this case the 60 minutes) will be used on this indicator.
On the previous chart we now add another moving average, but now we select the on the parameter "Period" the value "N" that means all calculation for this indicator will be based on the DAILY data, the in this case we will have a moving average of 7 days. We also select on the Draw Type tab the option to draw the indicator in STEP formation.
The next picture shows the chart with the 2 moving averages, note that the blue line is the moving average of 7 days in step formation. One direct application is, go long when prices are above the OWN period average (7 60 minute bars average) only if the NEXT period average (7 days average) is with the steps going up, if not stay flat. The reverse applies for the short position.
To a better understand this concept please read the Fibonacci Trader Journals.
Note the program can create Multiple Time Frames also on Tick Charts (real time version only), for example you can have the 50/250/1250 tick chart.
Trading any market carries a high level of risk, and may not be suitable for
all investors. The high degree of leverage can work against you as well as
for you. Before deciding to invest you should carefully consider your
investment objectives, level of experience, and risk appetite. The
possibility exists that you could sustain a loss of some or all of your
initial investment and therefore you should not invest money that you cannot
afford to lose. You should be aware of all the risks associated with
trading, and seek advice from an independent financial advisor if you have
any doubts.
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Copyright © 1996-2003 Fibonacci Trader. Last updated: December 06, 2007 . All names mentioned in this document are trademarks or registered trademarks of their respective owners.