I use the 20-period exponential moving average on all the time frames on everything that I watch but anything between 20-35 will do since it's a principle.
For example, the S&P futures trades for 405 minutes per day. Divide that by 3 and you get 135, which divided by 3 gives 45, which divided by 3 gets 15 minutes, which divided by 3 give 5 minutes.
Since traders of different sizes choose different time frames, I use the 20 EMA in all time frame to watch them. In the example of being "sandwiched", what I mean is that there are will be times where traders/trading systems will do opposing things in the same spot in the market where the moving averages from different time frame meet. As well, there will be times where traders from different time frames all meet in one spot going in the same direction. I prefer to trade in spots where I can see traders from two different time frames go in the same direction so that there is lots of wind in the sails.
In order to visualize this you can input the equivalent of the 20EMA from different time frames on one chart.
For example - this is what I do on my S&P chart.
On the 5M chart, I put on the 20EMA in bold red. The equivalent of the 20EMA from the 15M chart would be the 60EMA since 15M/5M=3 and we multiply that with the 20EMA. I plot this in grey. And on the 15M chart, the equivalent of the 20EMA from one time frame up, the 45M chart, is also the 60EMA.
I have written some stuff on this at intelligentspeculator.com
Stocks trade for 390 minutes per day, so in order to have all the bars contain an even amount of time in each bar, the time frames of 5/15/65/130/Daily work out just right but note that from 65M to 130M, it's only a factor of 2, so the 20EMA130 is 2X the 20EMA65. To see the equivalent of the 20EMA135 on the 65M chart, use the 40 period EMA.
Hope this helps.
Teresa |
