The Smart Way to Use Multiple Timeframes in your Strategy

In yesterday's email, I shared how using multiple timeframes in your strategy just for the sake of it is mostly BS.

Requiring confirmation to take a trade - using a secondary timeframe, or any other data point for that matter - will reduce the number of trades in your strategy.

This could be a good thing, but without more information, you have no way of knowing.

This is exactly the kind of thing you should NOT be taking at face value.

You should be putting it through your well-defined process to determine if it makes sense.

Rather than blindly adding more requirements to a strategy around multiple timeframes, here's what you should do instead.

Add custom columns (a.k.a. indicator values) to your column library that describe the situation on the alternate timeframe.

For example, let's say "confirmation" on the secondary timeframe is for the price to be below the 50-period moving average on the daily chart.

Instead of just requiring that confirmation, just keep all the trades in the backtest and add a column for "distance from 50 day moving average" (probably in terms of ATR, to normalize it).

(Remember, you don't want to add this as a boolean, i.e. 0 or 1 depending on if it's true or not)

Perhaps you have several columns you can add based on secondary timeframes.

This approach has the major advantage that you can run your backtest through the Strategy Cruncher and see which columns are most predictive across your entire column library.

Since it's in your column library, you can see how useful the column is for the strategy you're working on now, but also any strategy you ever work on in the future.

This gets you out of "guess and check" mode and using the Cruncher to create strategies that make money AND have lots of trades.

-Dave

P.S. Wish you could backtest your ideas - without spending months learning to code? Run your first backtest in an afternoon using my Amibroker AFL Course. Get Instant Access