The Importance of Higher Timeframe Influence

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 What's really interesting is there is a logic behind how a price bar actually forms. Very few people think about this, you'll see this rarely discussed, but I'm going to share this with you and the way a price bar forms has influenced not just on the price bar itself, but actually on surrounding timeframes. I'm a huge believer in the power of multiple time frame structures and multiple timeframe networks. Let's just talk about a basic price bar, every price bar must have a high and it must have a low. Now typically, when one goes in, if the low goes in, then the only direction that remains for the bar is for it to go higher. If the high goes in first, the only direction that remains is for the bar to go lower. Okay, this is logic, plain and simple logic. Then when we actually bring this into the context of a trend, it actually takes on a whole nother level of understanding. In an uptrend, the only way that a bar can go higher, is it must put its low in first. So when the low is formed, the only direction remaining is for the bar to go up. What's so interesting is that when a market moves lower at the beginning of a period, it often does so to put the low in. It then reverses in prices, then move higher through the remainder of the period. Most bars trade higher and lower at some point during the bar, very few of them just go up or just go down, they usually trade on both sides. Part of this trading on both sides is actually forming the low or the high and then creating the direction of the bar. There's a lot of detail that goes into this, it's going to be beyond the scope of this trader Tip Tuesday, but this is something that if you want to find out more about this is one of the things that we teach.

Now the important thing about this then is that once a low for a higher timeframe is put in, lower time frames must move higher in concert with a higher timeframe direction up. So an example is if the monthly low goes in than weekly and daily bars have to go higher. They may be able to go down for a little bit, but in general, they have to go up, particularly if you're one timeframe away. If the low for the month goes in weeklies in general have to go up, because they're adjacent timeframes, if the monthly is going up, the weekly has to go up. This is important in the context of today, we're starting a new quarter. When we start a new quarter, we start the formation of a new quarterly bar, a new monthly bar, a new weekly bar, and of course, daily bars that make up the week. Whenever we have multiple timeframes starting at the same time, this is when we tend to get really big moves. Beginning of a quarter, we're looking for the quarterly low or the quarterly high to go in first and if that goes in, it'll also put the monthly low or monthly high in and same with the week and the day.

In an uptrend, the lows tend to go in first and then the bars move higher throughout the period. In a downtrend, it's just the opposite. When the high bars are formed, the only direction remaining is for the bar to go down. So when a market moves higher at the beginning of a period, it often does so to put the high end first, then have the direction of the bar go lower through the remainder of the period. Human nature is such that when we walk in and we see a market going higher, we tend to think of the recency bias, which is that whatever's been happening will continue to happen. So when we walk in and see a market going higher, we tend to think it's going to keep going higher, not really thinking about the fact that it may be going higher to put the high in first. Once this high is in that direction is down in the market, we'll go lower the remaining at a period. In the context of a higher timeframe, like a quarter, if the high of the quarter goes in first then the remainder of the quarter, the month, the week and even the days will tend to be down. Again, we're starting new periods, this is what we're going to be on guard for.In a downtrend, the highs tend to go in first and then the market trades lower throughout the period. 

Now, this is one of those things that you kind of have to see to believe, you need to go through some charts yourself. I had a student who worked with me, who was the head of equity options for a large bank in Hong Kong. He had a 20 year career running a bank options trading desk, was a professional trader at a high level and when I show this to him, he's like, There's no way. I just cannot believe that something this simple is actually true. He did what he should have done, he went out and he researched it and he came back with all the statistics and he's like, I can't believe you're right. This actually is the case. Yes, it is. So here's an example in sugar. These are daily bars over about seven months and I want you to look, when does the high go in and when does the low going. Now, the high goes in January 3 The beginning of the year and then the market trades lower throughout January. It rallies late in January to put the high for February and so high for February goes in February 6. market trades lower again rallies late in the month. What's the high for Marchionne on March 2 trades lower throughout March, the high for April goes in April 2, right the beginning of the month that trades lower throughout April. He even starts to trade lower through May and then the low goes in first now something can't happen all the time. So in a downtrend, you occasionally get a counter trend month, as we get in May. So look at what happens in May, because this is really interesting. It trades lower in the beginning of May, leading us to maybe believe this is the high for the month, but we put the low in, we take out the highs. So the lo goes in first, we take out the highs and the market moves higher throughout May. So this is our first counter trend month, but look what's happening the counter trend month sets up next month high you go in first. So the high for the month goes in on May 31 and the high for June goes in June 1. Lo and behold the market trades lower throughout June and the high for July goes in July 2 and it trades lower throughout July. Six of the seven months put the high in first and then trade down. 

To get another example, this is in crude and this is actually in a market it's more of a two way market at least initially. One of the things we see is we see in July, the low goes in first. It trades higher and the high goes in last and August the high goes in first and the low goes in last, in September the low goes in first and the high goes in less. In October, the high goes in, the market trades lower, but late in the month it takes out the high and actually goes out on the highs. Then in November the low goes in first the high last and December, the market breaks late in November to put the low for December in and then it trades higher. Same pattern that we're talking about. show you one more and this is from this year. This is meta look at meta meta has been up all year long, but when the low for meta went in, it went in the first day of the year on January 3 at 122.28. It's never traded that price sense. So the low for the year one in early.

This has been a big year, for example of a lot of bears, we've even been in a bear camp and the idea is that there's all these problems in the economy and the market should go lower, but now when we're sitting here in July, and stocks like this, the low for the year is probably in. Now it's searching for the high for the year. Now the high may go in in August, it may go in in December, I don't know. Our tools that give us a great sense of when that will be the case, but there's a good chance that the low for the year is already in. This is really important because this helps you recognize the importance of these multiple timeframes and the importance of longer timeframes. Such that when we move into a new quarter, you know, it's really important to go through the yearly charts, the quarterly charts, the monthly charts, the weekly charts, and they'll start to paint a picture for you, a very powerful picture. It gives you a sense of what is truly strong and what is truly weak and then that's where we place our focus. Many of my best ideas actually originate from the charts first and then I see the news or the fundamental story show up later. I encourage you to go get charts and start looking through this, it will blow your mind. With that, I'll see you next Tuesday, when I'll continue to teach you different ways like today that will help you take your performance to elite level. Have a great week. God bless. Bye