Almost every trader other than those who day trade plan their entry using daily price charts. And although most know it is important to consider the weekly, monthly, and even yearly charts first, often this step is skipped over in place of just relying on just the daily charts alone.

Having said this, experience traders may say, "yes, that's right. Good reminder. I'm back to it", and then stop reading this article, the inexperience/new trader would be well advised to take note of the following.

A trend has within it smaller trends. Each of those trends have smaller trends within them, and so forth. A yearly price chart will show trends in which monthly, weekly, daily and intraday trends exist within. Imagine how mind boggling that is. If we only look at the small trend within the larger one, we miss the overall direction the market wants to go. Let me now share with you how all these trends start out, and then bring you along the road of common sense often not considered. The following discussion will deal ONLY with a BULL trend. Simply turn it all around for a BEAR trend, of course.

1. A BULL TREND is made up of SWING BOTTOMS that are formed higher than the previous swing bottom. It can form at times lower than the last swing bottom, but not lower than the last two swing bottoms.

2. ALL BULL TRENDS START WITH THE MAIN BOTTOM AND IS FOLLOWED BY A BOTTOM HIGHER IN PRICE THAN THE MAIN BOTTOM.

Now, simply visualize what I just said. Find any price chart, no matter what time frame, and locate the very beginning of a bull trend. Notice that price will rise, then fall again, but only to make a higher bottom than the beginning of the trend. Common sense. Not a revelation.

Now, think about this for a moment please:

 

• On a MONTHLY CHART, you notice that price made a monthly swing bottom, rose in price by a few monthly price bars, then declined again but has not moved lower than the very bottom.
• On a WEEKLY CHART, you spot the weekly bottom that makes up the actual monthly. You notice that it moved in an up trend off that monthly bottom, moving up and down, and now is correcting to the downside with the monthly move down. But prior to making a lower monthly low than the previous one, our weekly bottom is now followed by the formation of a higher weekly bottom.

If you have a weekly bottom, which is also the monthly bottom, and it rallied and now corrected to form a higher weekly bottom, what might that suggest about the weekly trend? What might that mean with the monthly trend, considering this is occurring while the monthly low is higher than the last one? The long-term trend may be changing to the upside.

But very few actually trade off a weekly chart. However, if you note the monthly starting to form the basis of a new BULL trend, and also the weekly chart, what do you think you should be concentrating on when using the daily price chart? LONGS ONLY!

The day trader usually does not care. However, if the larger time frames are strong to the upside, the intraday trader would be wise to focus mainly on the long side of his trades where strength is expected to be.

For most position trades, a glance at the monthly is all that is needed. Which way is it moving? Okay, that is your weekly trend and leave it at that.

Now, on the weekly chart, keep that direction in mind UNLESS you get the formation I mentioned earlier. If the monthly trend has been down, look for shorts UNTIL you note the weekly chart making a higher weekly swing bottom than the last one. Intermediate trend is suggesting a bullish note. Go to your daily charts and look for the same pattern. Find it, grab it, hold on to it. It is valid for as long as a weekly swing top does not form LOWER than the last one, which would suggest the intermediate trend is changing to the down side. The ride long is over.

It really helps to get the complete picture regardless of the time frame you want to trade. My daily reports always include comments about the weekly as well as the daily charts for any market in question. Sometimes the monthly as well is discussed. I find that simply looking at the daily charts is leaving a lot of important information on the table. It may also leave a lot of money on the table as well. Can you really afford not to have the complete picture when you trade?

Note: About the Author
Rick J. Ratchford is President of ProfitMax Trading Inc. He is a full-time commodity trader for his own account as well as assisting other traders. He has been a computer programmer for more than 20 years and a trader since 1990.