Using Long-Term Charts in Trading
Firstly, let’s be clear that you shouldn’t use long-term charts on their own for making any trading decisions. You can’t time your entries and exits from a trade with any precision based on long-term charts, and why would you want to anyway, when you have shorter term charts available? What you analyze in long term charts applies to long term price expectations, and not to the timescale of the trader.
Secondly, you should use long-term charts in conjunction with the shorter term when sizing up a stock or other security. Long term charts help you with market analysis which will point you in the right direction. They cannot be used for timing decisions, but they can give you a good overall picture that you do not get from looking at daily charts alone.
You can save yourself some time if you appreciate the best way to use long-term charts in your trading. You should always start with the long-term chart, and work your way through to the shorter term appropriate for your style of trading, whether it is a daily chart or an intraday chart. The first chart you look at might be the monthly chart going back for ten or twenty years, and this will give you the overall perspective.
When you look at this chart, you will be able to identify major trends, particular pricing levels that seem important, and any patterns that you will learn the significance of shortly. The next chart you should consider is the weekly chart, which will cover several years, and then you can look at a daily chart for perhaps six months and get a clearer picture of the security.
If you try to do this any other way, it will quickly become obvious why this is the best method. If you start with the short-term chart, then any conclusions that you come to may well have to be reconsidered as you go to the longer term. That means you will find yourself bouncing back to the short-term chart to redo your conclusions. It’s much better to start with the long range chart and work down.
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