Long-Term Trend Trading – The Time Advantage! Fundamental News Trading: For the Bulls, forex time frame trading spouses Bears of the Birds? For the most part, traders have a tendency to focus on the time frame that they personally are attempting to exploit. As an example, a day-trader intends to be flat at the end of every trading day.
I like to compare the issue of multiple time frames to listening to a piece of music. They contribute to the overall theme separately but your ear hears the finished product as a complete event. Larger timeframes work against the smaller time frames for the most part. For example, look at the first chart where a solid downtrend is in play on the five minute timeframe in the EUROFX futures. An intraday trader might be looking to sell the market on a slight retracement somewhere around the 1. 80 level as the market finds overhead trend resistance. Note that the oscillator is showing overbought.
Note that the 60 minute chart shows the current price level as being a possible support zone and the oscillator has potential to become divergent should the market stabilize and rise slightly. It is important to remember a few things about trading in any market. The point is that larger time frames control the market and if you intend to trade on a short time frame you need to know what the larger time frames are thinking. Otherwise, as we have seen above, your position might be in direct conflict with the actual force in the market increasing your risk of loss. This is a very simple and easy Multiple Time Frames Trading and Analysis. Does Multiple Time Frames analysis offer an edge? The first question that comes to mind when talking about multiple time frame analysis is its effectiveness and whether this approach offers any value to the trader, or gives an edge.
At any given time, short-term scalpers and long-term fundamental traders are looking at the same currency pairs and are trying to determine how to place or adjust their trades. However, while they may be looking at the same currency pairs, they are not looking at the same chart time frames. Short-term traders are most likely looking at 1-minute to 15-minuted currency charts, while long-term traders are most likely looking at daily to monthly charts. For the average trader, multiple time frame analysis could seem to be a bit complicated due to the various time frames involved. But with a disciplined approach a trader could very well incorporate multiple time frame analysis with ease.
Take a look at the illustration from the charts of the AUDJPY below. In this example we take a look at the AUDJPY currency and apply weekly and H4 multiple time frame analysis to find a better level of entry and this minimize risks. This simply tells you that the next and a few candles could close bullish. But at which price would you enter long? Do you simply enter long at the open of the next weekly candle and risk the retracement that generally applies? With multiple time frame analysis in forex your entry can be timed such that you minimize your risk while maximizing your profits. The charts above illustrate one such example of how multiple time frame analysis helps.