Rule 1 – Every time frame has its own structure as well as support and resistance levels.
A simple way to see price structure is by using the filtered wave theory described earlier. The waves for each time frame will be different since each wave is trying to closely mimic the key turning points for the specific time frame. The turning points for these waves are considered important support/resistance levels since they were strong enough to cause a reversal.
The above chart is the daily of The Hershey Company (HSY) with the wave structure and support and resistance lines. The red line connects the highs and lows of each wave in the price structure which helps to define the trend. This shows the price peaked in Feb 2014 at $108.69 and made a lower high followed by a lower low bottoming at $87.88 at the end of July 2014. Since that time the price waves have made a higher low and a higher high. The reversal point for each wave is considered support/resistance on that time frame. As you can see, in this time frame, there are several horizontal lines drawn depicting potential support and resistance levels.
This chart is the weekly of The Hershey Company (HSY) with its wave structure and support/resistance lines. Notice how much less noise there is on the weekly time frame during 2014. The daily chart had several waves during 2014 but the weekly only had one top and one bottom. As a result, we can see that the price structure is unique to each time frame and key support and resistance lines are different as well. It is important to recognize that key turning points will display differently in each time frame. In this case, the weekly chart shows the two most important reversal levels of 2014. This should be factored into any decision when looking the daily chart. We always want to look up a time frame to see key levels of support and resistance. In addition, we want to identify the trend based on the wave structure of the higher time frame. In general, it is best to trade when both time frames are shifting their trend simultaneously, but this happens less frequently. Instead, we can use key support and resistance lines on the higher time frame to help decide whether the trade has the proper risk/reward characteristics on the lower time.