Forex Trading Using Multiple Timeframes
Many professional forex traders use an extensive method that includes the use of many timeframes, and I also trust this trading system. How to?
Many professional forex traders use an extensive method that includes the use of many timeframes, and I trust this system. For trading with many timeframes, traders should first look at the timeframe in the long run, such as monthly or weekly charts to find out the general trend. This is actually quite easy; if the trend generally goes up, then you should open a buy position, whereas if the trend generally goes down, then put sell position.
Next is look at the shorter timeframe, such as on the H4 or H1 chart to find trading opportunities. As I stated above, if if the trend generally goes up, then you should open a buy position; but this does not necessarily mean that you are the same as not being allowed to open a sell position. There will always be opportunities for movement against the trend that will open up opportunities for you to trade. For example when there is a strong uptrend flow, then a minor retracement downwards could be a potential trading opportunity. Lastly, look at the lower timeframe, such as the 15M chart to ensure the proper entry point.
Since I am a day trader, I do not monitor daily charts, and instead use the H4 and H1 charts to see the general trend. Then, I will look at the M15 and M5 charts to see if there is any trading opportunity that appears. Of course, this can vary, all depending on how long you want to hold that trading.
The thing that makes trading with a lot of timeframes to be powerful is its ability to put traders on the right side of the market, as well as indicating available entry opportunities. In one of my favorite books. Alexander Elder, he describes the “Triple Screen” method used in the utilization of many timeframes, complete with details.
In Come Into My Trading Room: A Complete Guide to Trading, Elder says:
“Triple Screen resolves the contradiction between indicator and timeframe, reaches strategy decisions on long-term charts, uses trend-following indicators – this is the first screen.Then continue to make tactical decisions about entries and exit on intermediate charts, using oscillator – this is the second screen. Then provide some methods to place buy and sell orders – this is the third screen, which we can apply using intermediate charts and short-term charts. ”
“Starting from choosing your favorite timeframe, which chart you like to use, and call it ‘intermediate’ Then multiply its five runs to find your long-term timeframe Apply trend-following indicators on the chart to reach strategic decisions to unlock long position, short, or get out of the market Moving out of the market (not opening trading) is also one position to take If the long-term chart shows bullish or bearish, go back to the intermediate chart and use the oscillator to find entry points and exit in the same direction as the long-term trend shows: Set profit and stop loss targets before switching to short-term charts, if any, to improve entry and exit quality. “
Let me give you an example. For trading with this strategy, the trader will start with his favorite timeframe, say the H4 chart, and call it “intermediate”. To find the long-term chart of the timeframe, multiply by five (or 4, or 6). Thus, the long-term chart could be the daily chart (H4 chart x 5 = H20, H20 is closely related to the daily chart / D1). As for getting the short-term chart, the intermediate chart should be divided 4-6. Thus, the short term chart in this example could be the H1 chart (H4 chart ÷ 4 = H1 chart).
Long-term charts should be the first screen where you can focus on trends and use indicators such as Moving Averages, MACD, or trendline to decide whether you will open a buy or sell position, or not trade as the market is not trending. The intermediate chart is the second screen that Stochastics Oscillator or RSI can apply to identify the pullback entry zone. Finally, on a short-term chart, or a third screen, you are looking for a supportive / resistance breakout in the direction indicated by the long-term trend to guide the trading entry.
This triple screen strategy is really good. I always do it; check the higher timeframe first before opening the trading position on the lower timeframe. Trading forex with just one timeframe alone is like blind trading; You will not know what happens to the bigger conditions.
I hope this article will be useful to you. Good luck!