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Use Multiple Time Frames
The stocks we pick are analyzed to be held short term - a few weeks to a couple of months. The best charts to use for such trades consist of daily bars (i.e., each bar represents a day of trading activity).Daily charts reveal trading activity generally going back six to twelve months. Tops and bottoms in the past often create resistance or support as trading continues. But, looking at a weekly chart (i.e., each bar represents a week of trading activity) important tops and bottoms are shown going back some years. These old tops and bottoms are frequently just as important as those that are closer.
Look at this example of a good trade of CSG Systems International.
The trade started on December 3rd, shortly after the market opened. The previous day, December 2nd, was a down day and closed well above the low suggesting strength coming in. But the high and low were both lower than the previous day - certainly not a sign of strength. Given this weakness, it was prudent to get confirmation the next day that CSGS didn't have any strength behind a bearish thrust.
Try Looking at the daily chart from the perspective of December 2nd and ignore everything that followed, Was there any important top or bottom in the background to suggest support under the low of that day, at 14.59? The answer is "no" looking at the daily chart. But look at this weekly chart and the important low at 14.57 - only .02 from December 2nd's low of 14.59!
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