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Trading Forex Using Multiple Time Frames
Filed Under (General) by admin on 13-12-2008
This article describes why you should use multiple time frames if you want to become a profitable forex trader.Many people use just one time frame to trade the forex markets, and if they are profitable then fair enough. However if you want to be a profitable trader, it generally makes sense to use two or more time frames when making trading decisions.
This is because if you’re basing your entries and exits on just one time frame, you’re oblivious to the wider trend and you therefore risk trading against this longer term trend, which is never a good idea. For example, if the 4 hour chart and the 1 hour chart of a particular currency pair are in a strong bullish trend, then it’s probably not a good idea to be looking for possible shorts on the 15 minute chart.
You should always look to trade in the direction of the trend and viewing charts from longer time frames helps to show this longer term trend. This is something I picked up from reading one of Dr Alexander Elder’s books a few years ago, and this piece of information was invaluable to me as it helped shape my current trading strategy.
I now trade the 4 hour charts using an EMA crossover system but only ever trade in the direction of the overall trend from the daily chart. So if the daily trend is bullish then I will look for EMA crossovers upwards and vice versa. This has stood me in good stead and ensured I’ve always made some decent profits from forex trading.
It’s important to remember that if you only ever trade in the direction of the longer term trade, then you’re stacking the odds in your favor, and your entry points are not necessarily so crucial. Many times you will be saved by the overall trend going in your favor.
For example, if you like to trade the 5 minute charts, then you could use the 15 minute and 1 hour charts as a basis for your trading decisions. So if the pair was trending downwards on the 1 hour and 15 minute charts, for instance, then a good strategy would be to look to go short when the pair is overbought on the 5 minute chart because the odds are in your favor that a continued downwards move will take place.
Similarly you could trade the 1 minute charts and use the 5 and 15 minute charts for guidance, or if you are a long term trader, you could trade off the daily charts and use the weekly and monthly charts for guidance.
Whichever system you use, I personally think you’re always giving yourself every chance possible to become a profitable forex trader if you use multiple time frames to help you trade in the overall direction of the longer term trend.
Click here to read James Woolley’s review of ZuluTrade and to learn all the latest tips and strategies related to forex currency trading.
By James Woolley
Published: 6/6/2008
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I found more here if anyone’s interested