Long Term to Short Term Charts
LONG TERM TO SHORT TERM
CHARTS
It's especially important
to appreciate the order in which price charts should be
studied in performing a thorough trend analysis. The
proper order to follow in chart analysis is to begin
with the long range and gradually work to the near term.
The reason for this should become apparent as one works
with the different time dimensions. If the analyst
begins with only the near term picture, he or she is
forced to constantly revise conclusions as more price
data is considered. A thorough analysis of a daily chart
may have to be completely redone after looking at the
long range charts. By starting with the big picture,
going back as far as 20 years, all data to be
considered are already included in the chart and a
proper perspective is achieved. Once the analyst knows
where the market is from a longer range perspective, he
or she gradually "zeros in" on the shorter term.
The first chart to be
considered is the 20 year monthly chart. The analyst
looks for the more obvious chart patterns, major trend lines, or the proximity of major support or
resistance levels. He or she then consults the most
recent five years on the weekly chart, repeating the
same process. Having done that, the analyst narrows his
or her focus to the last six to nine months of market
action on the daily bar chart, thus going from the
"macro" to the "micro" approach. If the trader wants to
proceed further, intraday charts can then be consulted
for an even more microscopic study of recent action.
LONG TERM CHARTS
NOT INTENDED FOR TRADING PURPOSES
Long term charts are
not meant for trading purposes. A distinction has
to be made between market analysis for forecasting
purposes and the timing of market commitments. Long
term charts are useful in the analytical process to
help determine the major trend and price objectives.
They are not suitable, however, for the timing of
entry and exit points and should not be used for
that purpose. For that more sensitive task, daily
and intraday charts should be utilized.
PATTERNS ON CHARTS:
WEEKLY AND MONTHLY REVERSALS
Price
patterns appear on the long range charts, which are
interpreted in the same way as on the daily charts.
Double tops and bottoms are very prominent on these
charts, as are head and shoulder reversals. Triangles,
which are usually continuation patterns, are frequently
seen.
Another
pattern that occurs quite frequently on these charts is
the weekly and monthly reversal. For example, on the
monthly chart, a new monthly high followed by a close
below the previous month's close often represents a
significant turning point, especially if it occurs near
a major support or resistance area. Weekly reversals are
quite frequent on the weekly charts. These patterns are
the equivalent of the key reversal day on the daily
charts, except that on the long range charts these
reversals carry a great deal more significance.
Long Term to Short Term Charts