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Using Daily, Weekly and Monthly Charts to Pick Trades - 12-7-2003
 

Question:

What specifically do you look for on weekly and monthly charts for application to the daily charts for the contract months you are trading?

Answer:

I like to consult a longer term chart to give me a better perspective of current prices, especially if the daily price chart is making new highs/lows. Without consulting a longer term chart, you would have no way of knowing if the "new" prices are average for the market or extreme. You would obviously trade an extreme market differently than you would an average priced one. Current examples of extreme markets are cocoa, most of the grains and energies. The more extreme the price in the long term, the more significant the resistance might be in the short term.

Many times the weekly and monthly charts will show resistance at a particular price just like on the daily charts. These resistance points would require consideration when planning your trade on the daily level; as the price has proven to be significant resistance in the past. You can analyze the longer term charts just like daily charts: the more resistance at a specific price level there is, the more exact the resistance is, and the more extreme the resistance is, the "harder" it will be.

The only significant difference between the charts is the time frame, and this is most significant when considering retracements. Retracements on the daily level might occur over a matter of weeks or months, whereas on the weekly chart the retracements of trends could take several months to a year or more, and on the monthly level the retracements will take several years. This is important to remember when you are trying to determine where prices are going.

Many times the longer term charts will also hint to a market's cycle or trends. This is more difficult to analyze and can sometimes be misleading, but some markets, like lumber, make regular market swings that can be seen on a weekly chart.

-Erich

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