Multiple time frame trading is where a trader will use different time frames, generally a 3-5 X difference to find:
- Good trading setups
- Support for other time frame trading setups
- Manage trades
- Profit targets
- Stop placement
It is an art and can cause confusion for new traders who are working through price action trading and price structure.
Multiple time frame trading has its pitfalls such as using a lower time frame entry into a larger time frame setup but using the lower time frame for targets and stops.
When using a lower time frame entry, you want to ensure that all stops and targets are true to the original setup. The higher time frame setup will evolve differently than the entry chart and has it’s own volatility and rhythm.
I believe that trades should keep things as simple as possible and until consistency is occurring with one time frame, sticking to one time frame will advance you further.
Weekly Pattern – Daily Chart Entry
The EURUSD daily chart has been choppy for quite a while. I prefer daily charts because when price eventually runs, especially in Forex, the advance can make you a lot of pips. With a healthy position size, it can give you a full time income without the normal daily work grind.
The last several weeks, the Forex setups I post every week has been trying to get long the EURUSD. While the daily chart, seen below, does not offer great trading conditions, I’m not trading the daily chart in this instance.
For a complete appreciation for what I am talking about, here are the details you should know:
- I went long the EURUSD on March 4 just off the low in the area of the double bottom (You can see the momentum)
- I wanted to front run the break of the trend line
- Sat through the retrace
This trade entry was not following the daily chart price action. I was playing the pattern on the weekly chart
Here is some context of the weekly chart and why I am still looking long:
- The range on the weekly chart is about 275 pips from top to bottom
- An entry on the daily chart that is successful could give me enough movement to manage the trade
- Price had broken previous potential resistance September 2017
- Price is moving with weekly momentum to the upside
By using an entry on the daily chart using a break of a trend line (no magic there – just an objective area without having other price patterns to lean on), I could be placed in a great position if price starts moving upwards.
If price stalls, I have room to manage the trade and perhaps take some profits if things turn sour.
EURUSD Daily Chart Breakdown
Let’s get to real time with the current condition of the EURUSD daily chart to see how things played out.
The inset chart shows my trade entry off the lows upon seeing momentum in the market. The trade was entered in the late evening on Sunday March 4 and your charts may look different.
There are 2 important things to note on the chart:
- Price is “hugging” the trend line which is tilts the odd for a breakout from the trend line. Keep in mind and I’ve noted it before that trend lines may break but the horizontal support and resistance zones are more “reliable” as pivot highs, lows and the the extremes of ranges are easily seen. It comes down to managing your trade
- Momentum steps in and price rockets to the upside for 100+ pips
My trade management, given the context of the market, was that I wanted to see a sustained break of the trend line and and that would require the horizontal previous resistance zone to be broken and held. I would not hold this trade if price broke down back inside the range.
My stop was moved up to above 1/4 up from opening price of the green momentum candlestick. This locks in profit and gets me out of a market that is not ready to move. I was stopped out today for +50 pips.
Who’s The Real Trader?
Those are sound reasons for taking this trade but as we’ve seen before, there are many hindsight people who will think otherwise.
Here’s the thing – If the momentum would have held, these same people would applaud the thesis for the trade and found it to be a great way to take advantage of an “obvious” bull EURUSD market with a great entry on the daily chart for a weekly setup.
On the flip side, because it didn’t hold, the comments would probably be “the weekly chart is obviously a mess, weak, and you should be looking for a reversal. That was a stupid entry as the daily chart is ranging”. That may not be exact, but it’s close.
Outcome bias is something you must avoid.
How will the EURUSD play out? Who knows? Nobody knows. We can just trade the market using sound trading principles and techniques that have an edge.
Four Hour Short Trade
Trading is time frame dependent. What you choose to do depends on the chart you are looking at. If you trade a lower time frame chart such as the four hour, you had a trade today that takes into account what I speak about in the posts and in the trading setups.
While not the focus of this trading article, it is related to trading multiple time frames. It will also, if you think about it deeply, help you with the free setups I post because these are the exact same things I repeat on an almost weekly basis.
There are two trading setups on this chart that I highlight in the weekly setups.
- We have an obvious pivot area that rejected price and is the resistance zone that is containing the ranging price action. On the right side of the chart, price has pushed into the area with momentum
- Price pokes above highs and is immediately rejected (3-5 candles). This is a failure test or “trapped trader” setup and the entry is on the close or break of lows of reversal candlestick
- After a momentum push down, we have a lazy pullback where we can take a shot at another leg down
Why is there a trade at #3?
In other posts I talk about pullback trading and one thing you want to see is “lazy” price action. We could consider a “breakout/pullback” scenario but this pullback is strong.
Momentum in price can result in another move in the same direction. Combined with the failure test of highs, this is a perfect storm of conditions:
- Failure test of highs
- Price moves down with momentum
- Price pulls back/consolidates with low volatility
My position for the move down was in the EURO futures as opposed to the retail Forex market. I prefer the transparency and the centralized exchange for any intra-day trading. The only time intra-day is something I am interested in is when a higher time frame pattern fails – like we saw in the EURUSD.
Because a pattern failure – if it is a pattern that has an edge and is a true potential turning point – can often lead to setups counter to the original setup.
This is great analysis; thank you. I’ve learned a lot from observing a “lazy ” pullback rather than blindly waiting for all pullbacks to complete. What I’m doing now in addition to observing the size of the candles in the pullback is to look at the true volumes (easy through the data window in MT4 or vía indicators if preferred).
Although like yourselves I don’t use indicators much Volumes are one of the very few views which don’t lag. Id be interested in your view please!
To be honest….I don’t know what “true volume” is when talking about Forex. Seeing that is not a centralized exchange, I don’t know how you could get an accurate reading. The ONLY way I use volume in Forex is to use the Futures volume levels when trading the USD cross.
You could also head to the Oanada website https://www.oanda.com/forex-trading/analysis/open-position-ratios
Seeing that the client base is huge and there are some bigger money players trading from there….it may be useful.
I don’t factor volume into my trading and frankly have never been able to test nor have found any testing that shows an edge in using it for trading decisions. Trading, like anything, always has the “passed down” information that is never really questioned – like volume being useful, moving averages actually acting as support and resistance.
Do you really need to add something to show you the size of the candles? You could simply look to a low time frame to see if there is an exaustion or any sign of reversal back in the direction you wish to trade on the higher time frame.
I do use a volatility-adjusted baseline to look for significant moves over X period. This way I can easily scroll through charts to find where a big move, compared to recent activity, has taken place.
From there…..Markets have two forces – mean reversion and momentum. Think about this…if a big move happens – something else will happen. Keep things simple.
ive learned more from your site than i did with any course i bought. I don’t know why you do it for free but thank you. i have been able to make money for this first time with forex because of what you show
Glad to hear that and that you are getting some value out of my work