When looking at the time frames of a chart, time frame continuity basically means that the more time frames that are moving in the same direction that you are trading in, the higher chance of the trade working out. Still, there is always risk and this doesn’t guarantee a trade working out.
Time frame continuity is one of the universal truths of the STRAT method, along with actionable signals and broadening formations. This makes time frame continuity a particular part of technical analysis, especially when trading STRAT combos.
How to Identify Time Frame Continuity
When evaluating a stock for time frame continuity, Viking Trader suggests to evaluate in four of the major time frames: month, week, day and hour. These consist of both longer to shorter time frames which can be compared.
When comparing time frames for continuity, traders should look if the certain time frame is bullish or is bearish.
To determine if a stock is bullish on the certain time frame or bearish on the certain time frame, look at where the stock is trading relative to its opening price.
A stock that is trading above opening price is bullish on the day, and a stock that is trading below opening price is bearish on the day.
To easily determine this, a trader can look at the latest bar on the certain time frame and determine if it is bullish or bearish. There are also time frame continuity indicators.
This does not mean though that a time frame may not move from bullish to bearish or bearish to bullish, so always be prepared.
What Does Time Frame Continuity Tell Us?
Not only may it boost or diminish the confidence a trader has in their position or idea, but it signals to the trader who the active participants in the market are. These active participants are other traders who place buying or selling pressure on the stock.
For example, if all four major time frames, (month, week, day, and hour), are all showing buying pressure, then the time frame continuity may be said to be controlled by the bulls.
Time frame continuity does not mean that when you see it your trade will always work out, but the general idea is one of confidence in trades, and possibly a higher or lower chance of trade success.
STRAT traders like to find confluence, which is as many facts as possible in agreement.
Different Trader Types
Generally, the preferred time frames are the month, week, day, and hour, as said above, except traders may choose to evaluate different time frames according to their goals.
Long Term Investors
For long term investors, because their goal is holding for much longer lapses of time than many other traders, the preferred time frames are the yearly, quarterly, monthly, and weekly.
For swing traders, the preferred time frames are the monthly, weekly, daily, and the hourly. Swing traders are traders whos general time frame is from more than a day to a few months.
For day traders, the preferred time frames are the daily, half a daily, hourly, and 15 minutes. Day traders trade within a day, often having positions open for a few seconds or a few minutes.
Time Frame Continuity VS Full Time Frame Continuity
Time frame continuity is a part of full time frame continuity. As time frame continuity means time frames moving in the same direction, FTFC means all of the identified time frames moving in the same direction.
For example, in FTFC, if a stock is bullish on all of the time frames, (month, week, day and hour), or bearish on all of the time frames, (month, week, day and hour), then traders may consider this to be full time frame continuity.
Let’s look at this chart:
We see a Bearish 3-1-2 Reversal, but it didn’t really work out, and the trend has continued upwards.
Why is this?
Well, one reason could be because the traders were trading against the uptrend. Other time frames may have been in an uptrend too. This is where FTFC comes into play.