How to Analyze Stocks Using Multiple Time Frames

Multiple time frames are a powerful way to increase your profitability when investing in stocks. With the Exponential Moving Average indicator, you can even find long-term entry signals.

If you’re analyzing stocks on a single time frame, you are limiting your perspective to merely one vantage point. It’s comparable to walking around unknown territory while wearing blinders. In order to invest successfully, you have configure your charts to encompass multiple time frames. As a stock market investor, you also need to learn how to identify an underlying trend and trade around it accordingly.

By zooming out of the short-term picture, you gain a powerful perspective of how a stock has performed over its lifetime. Seeing things from the top down is also called ‘higher-level thinking’. Think of it as looking at a photo of yourself and the world around you from outer space. From that vantage, you can see the relationships between the continents, countries, and seas. Then you can get more granular, by zooming into a closer-up view of your country, your city, your neighborhood, and finally your immediate environment. Having a macro perspective gives you much more insight than you’d get if you simply looked around your house through your own eyes.

The different zoom levels represent different time frames in our charts. Because there are market participants who are trading with various different time frames (i.e. people holding stocks from a few minutes right up to those holding for many years), our setup needs to accommodate the fact that different types of market participants are involved.

The Best Time Frames for Long-Term Investing

In order to be a successful investor, you have to look at stock charts from a bigger picture perspective. A trend on a longer time frame has had more time to develop, which means that it will take many more market participants for the stock to change its course than in shorter time frames. Experienced investors have therefore learned to think long-term.

You can consider a general rule that the longer the time frame, the more reliable its signals will be. Significant support and resistance levels are also more significant on longer time frames.

The best overview is possible once all time frames are represented on your charts at once. In the list below, you can find the time frames that are commonly used by long-term traders:

  1. Month
  2. Week
  3. Day
  4. Hour

Everything in between is a multiple of the aforementioned. You may have read about the significance of the 5-minute time frame, for example. But market participants who do not look at what most others are looking at will soon find themselves in trouble.

After all, Trader A can look at the 5-minute time frame, whereas Trader B prefers the 30-minute. It’s evident that both can come to different conclusions at the very same instant.

Since we do not want to deal with the minute-to-minute wiggles, we should focus on the larger time frames. Long-term oriented investors will find most value by analyzing stock market trends in the weekly and monthly charts.

Trends can be classified as primary, secondary and short-term gyrations. The monthly chart is the most reliable time frame to determine the primary trend. Once you have determined the primary trend, you can proceed to the weekly chart to find an entry opportunity with the weekly chart.

Moving Average Indicator in Multiple Time Frames

It is often not enough to merely look at price action to navigate the stock market for profit. The moving average indicator, specifically the 200-period Exponential Moving Average (or 200 EMA), is one of the most reliable indicators for long-term trend trading. You should therefore add the 200 EMA to your weekly and monthly charts.

Imagine yourself interested in buying Apple’s shares with ticker symbol AAPL. AAPL began appearing on our stock screener when was trading near its 200 EMA. You may like the company’s culture and brand, its growth prospects, or simply the fact that Warren Buffett is invested in Apple since 2016.

The first step is to zoom out to the monthly time frame and ascertain the overall direction of the primary trend.

Primary trend of Apple (AAPL).
Primary trend of Apple (AAPL).

Apple’s shares have clearly been in a strong uptrend and is now experiencing short-term weakness in a secondary trend. You do not want to be betting against this stock at this stage. If you bet against a stock that has already been weak for months, you’re not thinking ahead of the crowd.

Aside from that, the stock has landed on the 200 EMA and possibly finding support there. The correct approach is to think about how you can exploit this short-term weakness and find a buying opportunity as soon as the price resumes its primary trend.

A great buying opportunity during a secondary trend is when the stock breaks above a trendline. In the chart below, we’ve drawn in such a downtrend line to help you visualize when an entry presents itself.

Secondary trend of Apple (AAPL).
Secondary trend of Apple (AAPL).

Novice traders and investors typically focus on only the short-term time frames, ignoring the more powerful primary trend in long-term time frames.

The buying tactic we introduced just now is part of the Pinball Trading Strategy that teaches you exactly how to trade stocks with the 200 EMA. Let’s see what happened after the downtrend was broken:

Break of secondary trend in Apple (AAPL).
Break of secondary trend in Apple (AAPL).

In summary, this is how we have used multiple time frames to analyze a stock:

  • We zoomed out to the monthly chart in order to gain a big picture perspective of the long-term primary trend.
  • After determining that the primary trend is pointing upwards, we zoomed in on the weekly chart to look for a buying opportunity.
  • The share price found support at its 200 EMA and a visible downtrend line bordering the secondary trend was broken a few weeks later.
  • Use the 200 EMA in all time frames. You’ll be surprised to see how stocks react when they get close to this moving average.

By taking the time to take multiple time frames into consideration, market participants can greatly increase their odds for a successful investment. Ultimately, the combination of multiple time frames allows you to better understand the trend you’re planning to trade and to gain confidence in your decisions.