Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Trading Major Indices With Time-Frame Analysis

By Chris VermeulenStock MarketsApr 18, 2022 04:05PM ET
www.investing.com/analysis/trading-major-indices-with-timeframe-analysis-200622386
Trading Major Indices With Time-Frame Analysis
By Chris Vermeulen   |  Apr 18, 2022 04:05PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

There are many benefits to utilizing multiple-time-frame analysis in your trading. Some of the standard time frames are monthly, daily, weekly, 4-hour, 1-hour, etc. Longer-term traders may also monitor quarterly and annual charts for clues in market price action.

Some traders use this process to hedge their position using options or an inverse ETF. Others use multi-timeframe analysis to enter new positions by exploiting counter-trend moves within a trending market.

Longer time frames tend to be more reliable, but shorter time frames can reduce risk. Experienced traders who utilize multi-time frames seem to be able to extract the best from all time frames to improve their overall trading efficiency.

Using the SPDR® S&P 500 (NYSE:SPY), we will look at a simple example of this type of time frame analysis utilizing the daily and a 4-hour chart:
In early January 2022, the SPY reacted at 2.618% of its COVID 2020 price drop.

The -14.55% price drop lasted approximately 50 days until the SPY found buying support at 1.618%.

This price drop took out the 4th quarter 2021 SPY low, which was also greater than any other drop that occurred during the 2020-2021 bull rally.

S&P 500 Daily Chart
S&P 500 Daily Chart

SPY PRICE DROP OF -14.55% VIOLATED ITS Q4 2021 LOW

The SPY 4-hour chart shows us the exact same price information as the SPY daily chart. However, in viewing the 4-hour chart, we have 6 times as many bars (1-day equals 24 hours and 24-hours equals 6 4-hour bars).

One example of how this might benefit us is when using a 72-period Bollinger Band on a daily chart would represent a calendar quarter. In contrast, a 72-period Bollinger Band on a 4-hour chart equals 12 days or one-half of a month.

As we shorten the timeframe of our chart, it is like we are looking through a magnifying glass which allows us to see our price data in greater detail.

Once the SPY price violated its 4th quarter 2021 low, we were signaled or given a clue that it may be time to liquidate our long positions and consider purchasing an inverse ETF to the SPY like SH.

The 4-hour SPY chart utilizing a 72-period (12-day) Bollinger Band provides us with an excellent opportunity to take profits on our previous long positions by liquidating.

72-period Bollinger Band: 72 4-hour bars equal 288 hours divided by 24, which gives us 12-days.

USING A MULTI TIME FRAME STRATEGY TO PURCHASE AN INVERSE ETF

There are different reasons for utilizing an inverse ETF. A trader may want to hedge their profit in the underlying market, or a trader may want to sell the market short outright. Regardless of the trader’s motive, an inverse ETF can provide additional benefits and flexibility.

As we analyze the SPY and how it violated its previous quarter low, we need to consider that the SPY may be transitioning out of its bull market phase.

An alternative strategy or counter-strategy is to purchase a SPY inverse ETF like SH – ProShares Short S&P 500. The goal of the SH ETF is to be as close as possible to the exact opposite of the S&P500 index (SPY ETF). A simple explanation of the inverse is that when the S&P 500 loses, SH will gain or when the S&P 500 gains SH will lose.

Since SH is an inverse ETF, we want to look for a place to buy SH using a multi-timeframe analysis chart like the 4-hour chart. The 72-period Bollinger Band (12-day) just gave us a ‘Buying Zone.’

SH 4-Hour Chart
SH 4-Hour Chart
Trading Major Indices With Time-Frame Analysis
 

Related Articles

Trading Major Indices With Time-Frame Analysis

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Ashish Agrawal
Ashish Agrawal Apr 18, 2022 4:32PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
wow what a perfect analysis
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email