I just wanted to highlight a recent example of the importance of referencing longer time frames when trading.

LYC has been in play for the last few days on the back of some regulatory issues in Malaysia. It gapped down significantly on Monday and drove lower, before bouncing into the afternoon session and following through on Tuesday. Here’s a 5 minute chart of the last 3 days:

There are some key support/resistance zones of interest noted;
* The gap fill from pre news
* The open of day 1
* Day 1 afternoon resistance

All of these zones (note I treat these as zones and not exact numbers) provide significant support or resistance over the 3 day period, and should be considered areas of close interest if trading this stock.

So just by pulling back a little from our micro intraday focus, we’ve already identified some additional information to colour this trade. But what if we step back further? Let’s have a look at an hourly chart:

Once we step back we can clearly see that both the initial bounce off the first low, and the subsequent bounce today, have failed at zones where the character and structure of the hourly downtrend channel has resumed.

In both cases they’ve effectively filled the gap from key levels of the previous day, but have also confirmed a continuation (for now) of an ongoing trend over a wider time frame.

How you utilise this information in your trade management would depend on your own time frames and plan for this trade, It might allow you to look for lower risk short entries intraday. It might lead you take a smaller position but with wider stops to try and capture more of the move over an extended period. It might prevent you from taking what looks like a strong intraday signal because the structure looks less attractive on a wider time frame. BUT…these are all things you should be considering before you take the trade, not after.

Know your trade idea, rehearse what it might look like when you’re wrong…and size accordingly.

Happy trading!

Alan