When analyzing multiple time frames there can often be confusion. Two different time frames of the same underlying could show us completely differing trends. They are both accurate, for they both show the same price action, yet they can be contradictory. In such case, the question arises: “Which trend is the correct one?”
In order to figure out which trend to trust when dealing with the technical analysis of multiple time frames, we ought to have a clear focus. Let me statistically, mathematically, and visually illustrate the point by setting three unambiguous parameters.
The First Parameter
The most common parameter is the evaluation of how much an underlying has moved up or down for the year. Rather than blindly trusting the TV gurus, we can, with a few clicks quickly verify those stats thrown at us. On the monthly chart we can use a vertical line to locate the December’s monthly bar; from its close to the current price, we can then measure the percentage change for the current year. At the time of this writing, with the second quarter of 2012 just ended; the following were the statistics for each of the four major ETFs. The QQQ, or the NASDAQ tracking ETF is up the most since the last year. The second on the table below is the SPY, or S&P 500’s ETF with a significant 8.25% increase. The third one, IWM which tracks the Russell 2000, was up nearly as much as the SPY. Both of them, the SPY & IWM are up about 8%; yet that is not the case with the Dow Jones Industrial Average, DIA which is up barely over 5%.
Ticker
% increase
QQQ
14.34%
SPY
8.25%
IWM
7.9%
DIA
5.5%
Figure 1
The point of knowing this statistical data is connected to our future expectations when trading. The QQQ most likely could move… Continue Reading
