Forex Trading using Multiple Time Frames
Most PROFESSIONAL traders use Multiple Time frames in trading. They do this primarily to identify the trend. Common cliches include: "Trade with the Trend" or "The Trend is your friend".
Trends EXIST on multiple time frames and can be classified as primary, intermediate and short term.
CAUSE OF FAILURE : In our opinion after watching THOUSANDS of traders trade, one of the MAJOR REASONS for failure in Forex Trading is they don't realize that markets exist in SEVERAL time frames simultaneously!
Typically, new traders zero in on ONE TIME FRAME, often ignoring the more powerful primary trend. We also see intermediate traders focusing on the primary trend and ignoring the short term trend and having many unnecessary losses because of it. They need more advanced and accurate SHORT TERM entry methods to get into the longer term trend.
Here are some other reasons PROFESSIONAL traders use Multiple Time Frames
- As noted above to determine the primary, intermediate and short term trends.
- SEE if all time frame trends are in same direction or are conflicting.
- Determine if the primary term trend will CONTINUE or is more likely to stall or reverse
- Multi Day/Week Fibonacci Analysis & Trendlines / Channels
- Spot Chart Patterns such as Narrow Range Days/Weeks, Inside Days/Weeks, Rectangle & Flag Patterns and more.
Thiis is a COMPLEX TOPIC that could fill up thousands of pages in multiple books but I'm going to try to give you some easy step by step ways of trading using Multiple Time Frames.
Step 1) Use our Daily or Weekly Currency Indexes to QUICKLY Spot BEST LONG TERM TRENDS!
We have currency indexes / currency meters on 8 of the most popular currencies (Euro, Pound, US Dollar, Japanese Yen, Canadian Dollar, Swiss Franc, Australian Dollar, New Zealand Dollar) but for these examples will FOCUS on the TOP 4 most popular individual currencies from which we determine the HIGHEST ODDS Currency Pair Trades!
From what you can see above we determine
- British Pound is the STRONGEST however it appears up TOO MUCH and is likely to stall at the 1.618 Fibonacci Profit Target OR Reverse. Not shown on this chart would be a Fibonacci Retracement from the low of 10/14 area to the high. Being UP SOO MUCH I personally would wait for a 50% to 62% pullback to 103.27 - 102.73 before looking for LONGER TERM SWING TRADES. For intraday SHORT TERM trades be aware the trend is extremely UP but is likely for the next few days and maybe up to two+ weeks to have selling pressure.
- Euro Dollar is next strongest having just taken out October highs. It has additional room on the upside but the intermediate trend of last month or so is up too much and also can have some selling pressure. IF it breaks out over previous days high you can look for intraday buys but if it has some intraday selling it has a good deal of room to go down to next support level.
- US Dollar longer term trend is DOWN however the intermediate term trend is UP. It broke through the 38% Fib and is chopping around sideways. It's likely to have some selling at the 50 and 62% fib levels of 104.88 and 105.66 and I would prever it to break down here and also break the trendline for what would be likely to be a huge multi day move down. Anytime you see a currency going sideways BREAKOUTS are MORE LIKELY to be powerful so if it does go up you need to be CAREFUL at the 50% level it is likely to go right through it.
- Japanese Yen has a longer term trend that is down along with intermediate term trend as well. It's down TOO MUCH and is at the 1.382 Fibonacci Profit Target. The 1.618 Fib target is at 82.96 so it could make it there in next few days to two+ weeks but is also just as likely to have a short term move back up to 38% Fib retracement of 85.78. At that price intraday traders could aggressively SELL the JPY vs the stronger EUR or GBP if strong at that time!
For the next time frame down we can ANALYZE 4 Hour Charts (as shown above) or even Hourly Charts.
From what you can see above we determine
- The EURO Dollar has broken down and we can look to sell it during this 4 hour bar. It's also NEAR now the 4 hour Containment Bands which contain price most of the time. IF we see a DOUBLE BOTTOM on a faster intraday time frame we can look to buy EURO vs a currency that is also weak but not down statistically as far.
- The Pound as we saw on longer time frame chart trend is up and up too much but it's intermediate term trend is still up until it breaks the lows as referenced by thick white line.
- The US Dollar is chopping around but current intermediate term trend is up.
- The Japanese Yen has the weakest longer term trend and is thus likely to stall at upper Containment Bands which it did. We could look to buy GBP (strongest) vs JPY (weakest) as the GBP was at its lower band and likely to go up as JPY was at upper band and likely to go down.
Trade 1) Sell the EUR/USD
Trade 2) Sell the EUR/GBP
Our Forex Signals were designed for more volatile pairs like EUR/USD, EUR/JPY, GBP/USD and GBP/JPY so in seeing today the EURO was weak and Pound strong we look for sells. Anytime a currency goes sideways for MANY HOURS breakouts/breakdowns are high probability trend trades. We know longer term the GBP is MUCH stronger than the EURO so when price broke .8300 we sell with stop right above the high at .8312 (1 or 2 pips above white line). There are many ways to EXIT intraday trends but this article is focusing on trading with multiple time frames. You can exit trade by using Fib Targets, Trailing Stops, using Support levels and also scaling out. I like to also exit at opposite side containment bands which you can see in this example caught almost every pip!
Trade 3) Buy GBP/JPY at Lower Containment Bands and 1.382 Fib Target!
Because we KNOW the GBP is strongest pair and JPY is weakest and the JPY on intermediate time frame chart was likely to stall at upper Containment Band we LOOK FOR BUYS at likely reversal areas such as Fibonacci Profit Targets and our Lower Hourly Containment Bands. Short term trends can often be vicious so WAIT for price to go 1 pip above the previous bar's high to buy. We would thus buy at 167.46 with TIGHT STOP right under the low at 167.37. This trade quickly shot up 40+ pips
Trade 4) Buy USD/JPY at Lower Containment Bands and Fib Target!
Similar to GBP/JPY above the US Dollar's intermediate term trend was up nicely and JPY is the weakest of 4 analyzed. It's likely to get a bounce off its lower Containment Bands. We do NOT JUST BUY here but WAIT for price to go 1 pip above an up bar's high. We would thus enter at 102.32 with stop right under the 1.618 Fib Target - 102.26. This is an ultra low risk of 6 pips plus spread and this trade is already up 30+ pips. I would exit half my position if price came under 102.60 and the rest when trailing stop gets hit OR upper Containment band is hit 102.82 currently.
SUMMARY: In finding trades that are WORTH risking your hard earned money you should analyze multiple time frames to determine the LONGER TERM Trend, Intermediate Term Trend and use our SHORT TERM timing tools such as FX Trade Signals, Containment Bands, New Hurst COG Bands, Trend Reversal indicator and more to TIME entries into the most likely direction. You are FOCUSED like a laser on the currency pairs most likely to make big moves and give you MORE PIPS than you risked. That is the #1 Secret to trading, small losses and BIGGER WINS!
Watch our video below for EVEN MORE DETAILS