1. Don’t use more than 3 (preferably 1-lower and 1-higher) and no less than 2 (preferably and 1-higher) time frames constantly in your day to day trading.
- Monthly, Weekly, Daily;
- Weekly, Daily, Hourly;
- Weekly, Daily, 4-hour;
- Daily, hourly, 5-min or Daily, 4-hour, 30 min;
- 4-hour, 30-min, 5-min or 4-hour, 1-hour, 5-min;
- 30-min, 5-min, 1-min
Personally, my preferred composition is Daily, hourly and 5-15 min charts. So, let’s take a look what the purpose of different time frames in this selection:
For Daily-hourly-(5-15)-min selection:
3. All stuff at higher time frame is stronger than on the lower time frames – support, resistance, overbought, oversold etc…but simultaneously wider.
4. Despite whatever selection you trade – you have to look at monthly and weekly time frames. Ignore the trend, but pay attention to support/resistance levels, overbought/oversold and patterns;
5. The daily chart is the major chart for this selection, since it gives you the context – enter long, short or stay flat. Here is you have to pay attention to trend direction (buy or sell), support/resistance, overbought/oversold and patterns;
6. Hourly chart – your preferred time frame. Here you have to watch for the trend, but only as confirmation of entry levels, support/resistance levels, patterns and profit targets. Ignore oversold and overbought.
7. We use 5-15 min chart only for confirmation of particular entry points – ignore trend, support/resistance and oversold/overbought. Use patterns that confirm the entry point.
Advanced comments – trend compounding
Commander in Pips: If you have worked a bit with multiple time frames, you probably have some questions about trend estimation and combination. I mean how to combine MACD on Daily time frame and hourly time frame. We assume that we work at the sameDaily-hourly-5-15 minselection.
1. Our context and our trend is a daily trend indicator, let’s say MACD. It tells us where we want to go – Long or short. For simplicity let’s assume that we want just to ride the trend and no patterns are forming currently on the market. It is preferable, that the market stands in thrusting mode. Look at chart #1:
Chart #1 | EUR/USD Daily
So we see all that we want from perfect move – market in thrusting down move, MACD shows bear trend, hence we want to enter short. Now market has reached Fib resistance and we want to estimate where we could jump in.2. For that purpose we use hourly chart:
Chart #2 | EUR/USD 60-min
Here we see that MACD in Buy mode, but we know that market stands at resistance. Here we have to watch over two events. First, look at the daily trend that it will not turn bullish. In this case our context for short selling will vanish. Second is to watch over the hourly trend – when it will turn bearish, we can use the nearest hourly Fib resistance to enter short. Now, it’s still bullish. This is tells us that the market could show deeper retracement and currently is not the time yet to enter short.So, our task is to wait for when hourly trend will turn bearish, while the daily trend will hold bearish all the time:
So what do we have:
1. Your context is higher time frame. It tells us where to enter – long or short. If the market is in a thrusting move – this is much better.
2. You use your preferred time-frame trend to filter the entry points. If the hourly trend shows bullish trend, while daily shows bearish – you have to wait for a deeper up move to a deeper resistance level. The major issue here is that the daily trend has to not break up.
3. If the daily trend still holds, then the market has reached some resistance, and the hourly trend also turns south – this is a moment to enter. Wait for the nearest retracement on the hourly chart to enter short.
Here is how it works… But again – here we discuss purely riding the trend technique, and assume that the market is neither at oversold nor at overbought and no patterns take part in our trading – purely the trend.
Chart #3 | EUR/USD 60-min
Ok, finally we’ve got that! The hourly trend has turned bearish. Let’s suppose that you’ve missed the entry right at nearest retracement after that has happened. If this is your case, then don’t be frustrated. Since both trends are bearish now, you may use nearest Fib resistance to enter short from the most recent swing. As you can see, later the market has gifted you with a 0.618 retracement. Let’s see what has happened after that… Look, the market just collapsed down. Where to exit and take profit is a very pleasant question after that, isn't it? You may apply any target – this is not the question of the current chapter.So what do we have:
1. Your context is higher time frame. It tells us where to enter – long or short. If the market is in a thrusting move – this is much better.
2. You use your preferred time-frame trend to filter the entry points. If the hourly trend shows bullish trend, while daily shows bearish – you have to wait for a deeper up move to a deeper resistance level. The major issue here is that the daily trend has to not break up.
3. If the daily trend still holds, then the market has reached some resistance, and the hourly trend also turns south – this is a moment to enter. Wait for the nearest retracement on the hourly chart to enter short.
Here is how it works… But again – here we discuss purely riding the trend technique, and assume that the market is neither at oversold nor at overbought and no patterns take part in our trading – purely the trend.
Chart #4 | EUR/USD 60-min
Thank you for the lesson.
I have a question regarding the patterns that you use on 5-15min chart for confirmation of entry point. Do these patterns include candlestick patterns?
Thank you.