Indicator Basics: Time Frames
Indicators should be adjusted to reflect the cycle being studied.
The same general rule applies to moving averages and oscillators. Alexander Elder (in Trading for a Living), however, gives useful advice for when in doubt:
- With trend indicators, make the window period longer;
- With oscillators, make the period shorter.
Moving Averages
Use moving averages (MA's) that are half the length of the cycle:
- 200 Day (40 Week) MAs are popular for tracking longer cycles;
- 20 to 65 Day ( 4 to 13 Weeks) MAs are useful for intermediate cycles; and
- 5 to 20 Days for short cycles.
Momentum Indicators
Use windows that are half the length of the cycle.
Martin Pring ( in Technical Analysis Explained) stresses the importance of using several windows with momentum indicators, in order to highlight patterns occurring in different time frames. He offers the following guidelines:
- Primary trend: 12 (recommended), 18 or 24 months;
- Intermediate cycle: 3, 6 or 9 months (13, 26 or 39 weeks); and
- Short cycle:10 to 30 days.
Cycles often vary in length - regularly check that the window that you are using is still appropriate.
