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Lower Time Frames of Cloud

I usually look at daily price action vrs cloud. The rule of thumb is that if price is above the cloud, the stock is bullish. Now, how effective is this same approach if I look at price vrs cloud in lower time frames..id 1 hour, 15 Min, 5 Min etc...

Comments

  • markdmarkd mod
    edited July 31
    I don't use IC, but after reading the Chart School article, there doesn't seem to be any reason it can't be applied to time frames other than daily (larger or smaller). The principles (identifying support and resistance) should be the same. Markets are said to be fractal, that is, patterns scale up and down, so rules that are valid in one time frame should be valid in another.

    However, there are some differences that MIGHT matter - the daily open and closing bars are often much more volatile than the rest of the day. Gap opens are one example, where traders' overnight decisions play out all at once, and they are all in one direction. The last bar(s) of the day can be volatile, too, as traders adjust their positions all at once before the close.

    On the daily and larger time frame charts, this intraday volatility isn't a problem because the action is "invisible" - all within one bar, so that volatility doesn't show up in the end of day/week/month numbers used to calculate indicators.

    But on lower time frames, hour, half hour, 15 or 5 minutes, it does show up in the numbers (open/high/low/close/volume) as an unusual spread compared to surrounding bars. That affects the movement of averages, which can be out of whack until those bars disappear from the tail end of the calculation (e.g. on a simple 5 MA, by the sixth bar, the open is no longer in the calculation). So, you may have to tweak parameters and/or adjust interpretations of signal events. It's likely different stocks will be affected differently. Most indicators work better on the most liquid (heavily traded) stocks, so best to test it out on those.

    Maybe someone who actually uses IC intraday can weigh in.
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