This is yet another tool I have adopted from the book, Trading For A Living.

Until I read about this method, I had only dabbled in the realm of using more than daily charts. I am willing to bet that for those that use charts to analyze stocks, 75% only ever look at a daily chart.

In a world of diversification, this is not an effective way to trade. By looking at monthly, weekly, and daily charts, you will gain multiple perspectives on your investments that will keep you from trading against the tide and eliminate the stress associated with choppy, volatile sessions.

Let’s start with an example:

Say you are trying to trade the Dow, using ETF’s like DXD and DDM. Several months ago, a daily chart user would have been looking at something like this:

Dow Daily - Click To Enlarge

There are two main areas of concern on this chart:

1. This was the first huge drop we saw out of the Dow. For many, it was the first time they saw the market shed 20% in a matter of weeks. After this drop, investors were feeling the burn and if they were going to sell, had already done so.
2. Now we move into the sideways trading range. Stocks continued to bounce up and down for over three months. If you are a short-term investor (holding positions for days-months), this area probably gave you hell. Every time you were sure the market had bottomed and jumped into a long, the Dow reminded you who is in charge and promptly dropped 3%.

Now, let’s see what the same chart looks like on a weekly scale:

Dow Weekly - Click To Enlarge

After seeing the chart on a weekly time frame, all that sideways, choppy trading looks much less significant doesn’t it?

If you got into a short on the market in stage 1, stage 2 would not have scared you out of it and you would have held it to continue to capitalize on the market’s downfall.

Some Things To Take Note Of:

• Simply looking at weekly charts doesn’t automatically make you a profitable trader.
• To become a better trader by using various time frames, you need to get in the habit of looking at a chart in at least the daily and weekly format.
• By using the weekly chart to invest, you eliminate most of the market noise (volatility, choppy sessions, high emotion whipsaws, etc.) and can trade fairly efficiently.
• Getting several perspectives on the market keep stress to minimum as the daily drama of the market is replaced by a calming feeling of control and understanding.
• Most importantly, it takes time and practice to learn this method properly.