The myth of lower timeframes = "noise". Great live example

Beginner Questions Candlesticks, Chart Patterns, and Price Action
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Hey traders,

I wanted to share a recent trade I made off an M5 chart. It’s quite common on forex threads to hear individuals talk about how lower timeframes are nothing but “noise”. To me, this notion is garbage and an oddity which I have yet to fully understand.

As a technical trader, rarely would you ever want to base a trading decision on a single candle, simply because that is not how trading works. I’m more than willing to get into the specifics if anyone wants to debate me on this concept of “noise”, but, for now I wanted to share my chart and hopefully let it do the talking.

When delving into lower timeframes, it’s incredibly important to “chunk” the data. In other words, there’s no need to focus on any single candle (the majority of the time). Once you can spot structure (recognizable patterns, how they align with higher timeframe indicators), context (where is price currently trading- near a key level?), and environment (is price sideways, trending down, trending up on higher timeframes?) you’ll see that as a whole, lower time frames are going to provide a clearer picture of the markets’ intentions. Don’t be afraid of the M5 chart. It won’t bite- unless you want it to.

EURAUD M5 PROFIT 5.29.jpg700×425 41.7 KB

EURAUD M5 Chart
HD Link to chart

Make sure to pull up the chart in a new window and zoom so it’s nice and clear.
I’ve become bearish on this pair, and was looking for an opportunity to enter.
Personally, I think selling rallies until key swing points are taken out to the topside is going to be excellent heading into the next few months.

-Entry was made simply @ the previous structural support level, which carved out a mini-bearish breakout structure (triangle). A larger structure formed after my entry, which simply added confidence to my position being placed properly. Notice how many times the market gave you an opportunity to get in short off that descending trendline (following my entry point)…count them…7 times.
-20 EMA was used to trail stop- monitored this trade live overnight using nothing but the M5, as there was some key AUD event risk.
-Initial target was missed by 2 pips. No big deal, it happens all the time even if you add a “buffer”.
-I then said to myself…if that 20 starts to get violated, then I need to consider covering. Lo-and-behold, a Short Term reversal structure started to form- see box.
-Price is likely to see a retest of that breakout floor. Where, if it holds, I’m most likely going to be getting short again gunning for a retest of 1.46. Need to ensure that the retracement back to this level is primarily corrective though.

Please let me know if you have any questions / comments.
Hope you had a profitable month.
Here’s to June!

Jake

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+1 IMO 100% on the money. A single trade plan should address 5 things, no matter what time frame, trading method or trader label someone gives themselves.

  1. Trend
    2 Momentum
    3 Cycle
    4 Resistance levels
    5 Support levels.

Depending on your approach and what you’re trying to achieve entering a trade, the 5 parts can be more important to you than other’s. Example if you executed a trade based on Weekly time frame, momentum would not be as important as where you are in that particular trading cycle, trend etc, on the other hand if you were executing a short term, say 5 minute momentum would be more important than trend on a 4 hour chart.

Like everything there are advantages to longer time frames and disadvantages. Same with short time frames. Traders should be looking at every trading opportunity to either make money or lose the least amount as possible and not limit themselves to a particular time frame, analysis, bias or trader label. Whatever the trade, the process should be the same. Plan the trade based on information and options available, pick the least of the evils trade the plan and let the market come to you. My 2 cents
Gp

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@FOREXunlimited , well done on that one.
I have a question. I’ve been looking at the 1H EURAUD (see this) and I see 2 similar actions pushing down the price. First one got stopped and oscillated for a while. Then, what appears to be the same guy did it again - the 2nd action. I was thinking that you couldn’t have scored 83 pips on the SELL without that 2nd push down.
Am I right, or close to the truth ? I’m just speculating but still …

4

Good spot- pattern recognition (in terms of candle behavior) is a powerful tool to have when analyzing a price chart.

-Pull up a Bid D1 chart and drop a horizontal line @ 1.4718. Check out the corresponding price action @ that level. This was my target area, where I knew orders would be stacked.
-Drill into an H1 chart now, but zoom out enough so you can see the peak of the uptrend @ 1/24/2014. Look @ price action now, how new structural lower lows, and lower highs have been carved out.
-Zoom in a little more now, so you can see the 5/21 swing high. What you should see is a clear cut triangle (1.4718 being the base, and price sloping downward into that level).

Regarding the underlined portion of your comment above:
I avoid negative mind-speak like this at all costs.
Regardless of what could or couldn’t have happened, the most important aspect was that I executed according to a plan. I spotted a recognizable pattern which I like to trade, and acted without hesitation.
“Couldn’t have scored…without that second push down…” What is “that second push down”?
It’s the breakout. The 1.47 level is a logical place to trail long stops for buyers getting in @ 1.46, so once those get tripped, and sellers pile into the market, the result is impulsive price action to the downside.

Look how tightly price constricted before the explosive move. This is exactly how the trade should have worked out. Breakouts of key levels occur subsequent to price action constriction. Think about it like a bottle of soda- the more you shake it, the more pressure builds up. Once you open the lid, the soda bursts out. That is how breakouts work. Price constricting constricting constricting and tightening is pressure. The pressure release is the breakout.

Saying that the 83 pips couldn’t have been made without the second move is like saying “my car couldn’t start until I turned the key in the ignition”. Exactly- I need to wait for the market to make the move before I could cover for profit. I couldn’t predict how the market would move exactly, I just needed it to move in a direction which I favored. Pull up a daily chart, and that “2nd action” doesn’t exist- know what I mean?

The next key break is going to be around 4560 if 1.46 fails. I’m looking for 1.46 to fail, to get short @ a break of 4560.

Hope that helps.
Jake

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Hi Jake, sorry for speaking negative about your trade. I wanted to understand your motivation, mind-set, etc, and you explained it 100%
1/24/2014 is clear, 5/21 is clear, @1.4700 with accumulation and breakout is good explanation (confirmed by the chart).
I hope to get more examples like this from you in the future :slight_smile:
Did you share your results ? Mine is mihk on myfxbook. I’m curious, nothing else.
Good luck.

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Heyyy- no worries at all. I didn’t mean it like that, just trying to share my perspective on why it’s bad to use terminology like that when talking about trading.

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I have a question, I’m not scared of the lower time frames but, I’ve been told the higher time frame is more “powerful” than the lower time frame. I remember someone telling me if you want to see the future, just look higher. But I have a small problem with the idea in my mind because in my mind the smaller time frame makes the larger time frame. I have also heard that if you find a pattern, that pattern will complete on the time frame on which you found it. So my question here would be what happens if you find conflicting patterns? Example: On the 4H chart (I haven’t seen yours but bare with me for an example) you are in the latter half of an “M” pattern (The straight down movement;the right line going down). Now on your 5 min chart above, where the 2 fakes are breaking the key trend line how worried would you be of it doing a break? Because the way I’m looking at it is lets say it breaks for 75 pips; 75 pips is 75 pips on a 5M chart or a 4H chart. Or is my mindset wrong and should be “The “M” pattern gotta finish”.?

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I’d ask that you please define the term ‘powerful’?

Indeed- candlesticks can be fractal as you drill into lower time-frames.
1 D1 candle = 6 H4 candles = 24 H1 candles = 48 M30 candles etc etc.

What is a pattern?
What is a time-frame?
Try to think about movements in price in a less-rigid structure. Price moves up and price moves down. Time-frames just represent those movements in nice boxed in periods.
Yes, if you ‘‘find a pattern, that pattern will complete on the time-frame on which you found it’’; except when it doesn’t.

Define conflicting patterns?
-An ascending wedge on an H4 may take 1-3 days to break to the downside (off the peak). Except when it doesn’t.
-An ascending wedge on an M1 may take 5-10 minutes to break to the downside (off the peak). Except when it doesn’t.

Some traders use multiple time- to analyze price. Others stick with one. It all depends on your strategy- there is no black-and-white answer to this question.

I’m confused here- may you please supply a chart?
What is an M pattern representative of? I can call out a million patterns on a chart every day, but, 100% of them are not tradeable because they need to be taken in context. The only “M pattern” on the H4 I see is not a valid pattern I’d be concerned with. Double tops should occur @ the peak of a move. I guess if you supply a chart I can see more easily what you’re asking.

Ok- so, if a trend line gets broken, that’s one piece of the puzzle. Trendlines break all the time. The 2nd piece which is required, is the follow through. A break without follow through is a trap for rookies.

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So, my initial post on this thread was illustrating the myth of lower time-frames being “noise” and how they are un-tradeable. I wanted to make a point, so I watched the EURAUD for another “noisey” opportunity.

My first trade last week was a short EURAUD VIA the M5.
This trade, was a long EURAUD via the M1. Yes, the big-bad-and-scary 1 minute chart. I wanted to drop down even further to make a point here, that a lot of what you hear/read about lower time frames is just absolutely false. If you have an edge in terms of strategy, execute it, be patient, manage your risk and emotions and you can be profitable on ANY time-frame.

I just want to defend these “x minute charts” because they have been given a bad name for some reason, which I’m struggling to understand. Clearly, these are only two trades and by all means are not definitive or ground-breaking. However, setups occur every single day on “noisey” time frames and are 100% tradeable with a plan and an edge.

EURAUD M1 ECB 6.5.14 PROFIT.jpg700×425 39 KB

EURAUD M1 Chart
HD link to image

Pull up the image using the link above to see clearer.
I don’t have the time right now, but I’m going to be posting an in-depth analysis of this trade from A to Z in my blog. I can share if anyone is interested.

Jake

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Where can I find your blog?

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Here’s the detailed trade analysis of the above EURAUD long.
Hope you enjoy- please let me know if there are any questions.

LINK

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Once again great analysis. Well worth the read.

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Thank you- glad to share.

:slight_smile:

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Thanks a lot for this :slight_smile: really appreciate you taking the time to put it together!

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No problem- hope you found it useful.

:slight_smile:

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With enough observation, stats gathered and guts people can trade using crazy technique that some people deemed not worthy. I’ve seen people make 10% or more per day using 1 minute time frame complete with trading history and strategy posted in public. Others are using news release directly off of forex factory’s prediction table and make 5% per trade lols…

So yeah… this is a good thread for people who dissed small time frame trading.

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Thanks for commenting Don.
Yea, I’ve never understood where the notion that anything less than an H4 chart is “just noise”.
Absolutely baffles me how prevalent the concept is though…

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Does this so difficult to understand that scalping with frequent entries is a sheer deal nut in long-run from the point of average distribution??? Small time dimensions don’t contain any clear signals of market sentiments, price patches there are merely parts of bigger trend formations. If you got around reading books on tech analysis, you would find the rule, that nobody is able to define trend at the start of its forming… simple as that…