Why Use Multiple Timeframe Moving Averages
So why should you consider using multiple timeframe moving averages? In the type of trading I do, I rely heavily on the 20-period SMA as a reference point for intraday trend identification. I was taught by my mentors to trade on a lower timeframe such as the 2-minute chart (early in the morning) or the 5-minute or 15-minute chart (later in the day). But no matter what chart my focus is on, the goal is to always try to trade in the direction of the higher timeframe trends. Basically to trade in harmony with the larger forces that are at play. To accomplish this, I use multiple timeframe analysis of a single stock, keeping multiple charts of the stock open at one time. And depending on the time of day, I might have a 1 or 2′ chart, a 5′ chart, a 15′ or 60′ chart, and the daily or weekly chart open.
Soon I began to realize that it would help me simplify things and conserve screen space if I could analyze the higher timeframe charts while only using the lower timeframe chart. After all, the same data is all there, it’s just presented differently. Over time, one way I’ve found to do this is by calculating a higher timeframe simple moving average and displaying it on a lower timeframe. This will tell me how extended price is on multiple timeframes, or how deep a pullback is and thus how attractive a given setup looks across multiple charts, all without leaving the chart I’m currently working from. You will be surprised at how often a 20 period simple moving average from, say, a 15′ chart, acts as support on a 5′ or 2′ chart.
Not So Fast
In order to make a higher timeframe SMA accurately show up on a lower timeframe, you can’t just use a longer SMA on the same timeframe … there are subtle but real differences in the locations of the averages due to more data being used to calculate the longer SMA from the lower timeframe chart, and I’ve found that the true higher timeframe averages are more reliable as support and resistance, since they are what longer-term traders on those higher timeframes are actually looking at and basing their trades on.
So to solve this dilemma and make life easier on myself, I eventually developed a study that allows me to add ANY higher timeframe MA to any lower timeframe chart. I trade off the 20 SMA, but if you trade the 21, 25, 10, 50, or 8, this indicator can easily work for those as well. It can also allow you to plot multiple timeframe moving averages on the same chart. Say you’re on a 2′ and like using the 10-period exponential MA on higher timeframes. You can add the 10-period EMA from the 5′, 10′, 15′, 30′, 60′, and 4-hour, etc., all on the same 2′ chart at the same time. Or you could mix it up and add the 50 period simple moving average from one timeframe, the 20 period Wilders Moving Average from another timeframe, and the 10 period Hull Moving Average from yet another timeframe, all on the same lower timeframe chart. The possibilities are pretty endless and can easily accommodate whatever your trading system needs. You can also easily color-code each multiple timeframe moving average to make them easily identifiable.
What You Get
I’ve recently updated this study to version 2.0 and added some great new features:
- NEW! Choose ANY moving average type (simple, exponential, weighted, Wilders, Hull)
- NEW! Choose your price type (close, open, low, high, etc.)
- Set the moving average’s aggregation period (months, weeks, days, hours, minutes, etc.)
- Choose the moving average length
- Specify the average’s color and plot style
- Add as many copies as you want to the same chart to view multiple timeframes on one
Due to how Thinkorswim builds the hourly (60 minute) bars on charts displaying regular trading hours data only, using a 60′ MA on a lower timeframe chart that only uses regular trading hours is not recommended — the line will look “choppy” and dashed. Instead, you can use the 60′ MA on a chart that has Extended Hours enabled, and that will work perfectly. It’s only the 60′ on a regular hours only chart that has incompatibilities.
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