Rule 2 – The higher time frames overrule the lower time frames.
Rule 2 means that if we have a buy signal on the daily chart and a sell signal on the weekly chart at the same time, the weekly chart wins. Exxon Mobil Corp. (XOM) below has a bullish crossover on the daily chart at the same time there is a bearish crossover on the weekly chart. We do not want to buy this daily signal when it is essentially giving the same signal in the opposite direction on the weekly chart.
In fact, I will show you the tactics to take advantage of this scenario later in this manual. For now, just understand that we never take a setup on a lower time frame (daily) if the higher time frame (weekly) is giving an opposing signal at the same time.