Posted 27th January 2017
• Choosing the right timeframe
• Establishing the bigger trend
• PLUS: Zooming in to find your trade
Joe asks: “How do I know which timeframe I should be looking at on my charts? I’m looking for trades where I don’t have to spend all the time at my screen. Any help would be appreciated.”
It’s a good question and one that any trader needs to figure out.
And it really depends on what your aims and time constraints are, as Joe here understands. Thanks for the question.
To answer Joe’s question, the key point is that you should focus on the timeframe that suits your goal and fits in with your routine.
Some guys like to nip in to the market for 5 or ten points at a time, many times a day. They want lots of little profits to pay their day’s trading target. It’s called ‘scalping’. We’ll look at that another day.
Others want to be a little bit more relaxed. They DON’T want to be so frenetic. If you’re doing a 9-5 job, or have other day-time commitments, I’m guessing that’s you.
And to be honest, your experience should come into it too.
Scalping the markets is pretty tricky to do and requires immense concentration. And when you’re going for 5-10 pips, sudden moves can quickly knock you out and destroy your bank.
If you’re new to trading, I’d recommend starting with higher time frames. It’s easier to pick out good, reliable chart patterns and have a bit of conviction in your trade.
It’s more relaxed that way – and you don’t need to be chained to your screens.
What I find, though, is that you should use more than one timeframe to find, enter and manage your trades. Let me show you what I mean.
The idea is to use the higher time frame to establish the trend. And then you use the lower time frame to identify your trade entry – whether it be going with the trend, or playing the pull-backs that you invariably get in trends.
This isn’t a live trade idea, by the way. It’s an example, using some old charts from July last year to show you what I mean.
So let’s look at some charts. The first one shows weekly candlesticks. In this one, each candlestick represents a whole week’s price action.
And this next one shows the daily candles. Each candlestick represents one day’s price action.
What do you see?
Well, on both charts we can see a small downward channel (on the right of the charts).
And on both charts, this channel is within a wider range, this time an upward trending channel.
These channels are plotted simply by connecting the highs and lows on the trend lines.
So we have a powerful move up to the top of the bigger channel at the end of June. Then, on the right hand side of the charts, price is heading back towards the bottom of the range in a small downward channel.
OK, so far so good. But what next?
Zooming in to look for potential trades
Once we have a high level view of the market, we then look at moving lower and considering potential trades.
So let’s bring it down a level and look at some shorter timeframes. Here is the 4-hourly chart (each candle representing four hours):
And here it is, after zooming in a little further on the 15-minute chart…
As we zoom in on the lower time frame, we continue to see the trend channel lower. But we can see the price has bounced off the bottom of the channel and is heading higher.
And do you see how you could trade this – or at least get a clearer picture of how the price is behaving?
You have a clearly defined channel. And you have decent support and resistance levels to use in setting potential stop loss and target levels. And in these kinds of situation, one pretty tactic that can work well is to look to play the channel until it clearly breaks.
That latest zoom in gives us a more defined channel and we can see at that point price was close to the bottom of it – it’s just bounced off it, in fact.
And in fact if we look at some updated charts, we can see that a short-term trade entered at that point would have led to a 100-pip gain as it rallied up to the top of the channel over the next couple of days:
As for the bigger timeframe, we can see that a break of the long-term upwards trend line led to a significant 450-point move:
It’s worth keeping these significant trend lines marked on your charts – and playing close attention to price action at or near them.
So the key takeaway from today: get to know your timeframes.
And learn how to use the different timeframes combined to give you a better picture of your market – and better potential trades as you play the trend in different ways.
Getting back to Joe’s question, which timeframe you use depends on how much time you can spend at your charts. If you can only trade at the end of the day, higher timeframes are better.
But just be aware that if you are trading off daily candles, you’ll need larger stop losses to accommodate the possible daily range.
To older hands, that might seem obvious. But it’s something that’s always worth a reminder, especially to those newer to trading.
Get my next LIVE trade
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It’s all there for you in the members’ area for you to use – along with my regular trade ideas. Not sure it’s right for you? The best way to see is to try it out for 30-days on my no obligation trial.
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