Help with chart formations from BP school

[learningfx]

I was rereading chapter on BabyPips about important chart formation such as Head and shoulders, Double top/bottom, Symmetrical triangles and more. However there was no mentioning on what TF do we look for those formations.I assume daily , weekly, mo. TF.

If I use shorter time frame how would I connect those chart formation from longer TF to my shorter TF like 15 or 30 mi, or is that only used in long time frames.

I never see any of those chart formations on short TF. Can they be found or is it too short of a time for a chart formation to develop?

Please give a real simple answers so that I can better understand.

Thanks

[4xStar]

Those patterns appear on all timeframes, from a one minute to a monthly & trading them is just like trading on any timeframe .. a head & shoulders on a 5 min is going to play out more quickly with tighter stops and less potential profit than the same pattern on a daily.
To see them you often have to zoom out so you can see patterns as opposed to individual candles.

[Andrewunknown]

Originally Posted by learningfx

However there was no mentioning on what TF do we look for those formations.I assume daily , weekly, mo. TF.

Hello there Learning,
Chart Patterns aren't specific to any single timeframe. As long as liquidity is present, chart patterns will evolve, whether you're looking at a 1 minute or 1 month chart. There is more noise, as you know, the closer you zoom in, so it is often best to consult higher TF(s) if you think a specific pattern is developing to check your recognition of it.

Originally Posted by learningfx

If I use shorter time frame how would I connect those chart formation from longer TF to my shorter TF like 15 or 30 mi, or is that only used in long time frames.

You'll see chart formations within chart formations where shorter TF setups make up single legs of a pattern evolving on a longer TF. Approached from the other direction, if what you are reasonably sure is an ascending triangle presents itself on hourly chart, it may be unwise to sell on the 15 min. If you have the ability to trade against a pattern developing on a longer TF, there are pips to be made; but for most that considerably heightens risk - in the form of breakout volatility moving against you - while presenting limited reward.

The simplest and one of the most effective metaphors for TFs is the telescope. Each timeframe is engulfed by the next largest in order, but the shorter TF creates and informs the larger with content. At the same time, each longer TF is the summation of a series of multiple short TF snapshots, refining them and creating coherence by linking them together.

For more on TFs, review the 9th grade material....

[learningfx]

Originally Posted by 4xStar

Those patterns appear on all timeframes, from a one minute to a monthly & trading them is just like trading on any timeframe .. a head & shoulders on a 5 min is going to play out more quickly with tighter stops and less potential profit than the same pattern on a daily.
To see them you often have to zoom out so you can see patterns as opposed to individual candles.

Thank you guys for your detailed answers. Now that I'm closer to understanding that puzzle, I have another question as to incorporating MA and trend direction into Chart pattern.

Let say that double top or any other chart pattern is formed, and good idea would be to sell/buy bellow/above neckline, but MA and other indicators are in opposite direction. What should I do in that situation?
What is more reliable MA, trend or Chart pattern?

Thanks again.

[4xStar]

"The trend is your friend" For safe newbie-style trading, it is best to first determine the overall trend of the pair and trade with, not against, that .. even if the setup looks tempting

[Andrewunknown]

Originally Posted by learningfx

Let say that double top or any other chart pattern is formed, and good idea would be to sell/buy bellow/above neckline, but MA and other indicators are in opposite direction. What should I do in that situation?
What is more reliable MA, trend or Chart pattern?

There're a few things going on here, which bring up some great questions to ask yourself. First, what type of pattern am I looking at? Identify the pattern (careful not to will a pattern into existence). Next, ask: is this a reversal pattern, or a continuation? In other words, what is the probability, for example, that this falling wedge is going to snap into resumption of the larger uptrend in which it seems to be occurring? And, if you add an MA into the mix: how many periods is the MA? The longer the period, the less likely it is to reflect the same direction that head and shoulders seems to be signaling after trending in the opposite direction. It also depends if you're crossing between TFs (MA up on 1H chart, down on 15 min, taking trade on 5 min, etc.) or analyzing and executing off a single TF.

Whatever the case, trend is primary. Trading on a reversal chart pattern (especially if it hasn't been confirmed) is similar to picking a bottom: something that enjoys limited success next to simply hopping on the coattails of the directional momentum of the larger market. MAs will (soon) follow. Chart patterns are always tentative until they are confirmed; this means they have to be traded on probability, which is a less exact and potentially costly science....

[learningfx]

Originally Posted by 4xStar

"The trend is your friend" For safe newbie-style trading, it is best to first determine the overall trend of the pair and trade with, not against, that .. even if the setup looks tempting

Hi 4xStar,

Some time I can tell the direction of a trend , other time I can not. For instance; If I zoom in Daily chart and most of the chart appears to be up, but very last part oh the chart is down, is it still considerate up, or is it now changing to downtrend?

Thanks

[learningfx]

Originally Posted by Andrewunknown

There're a few things going on here, which bring up some great questions to ask yourself. First, what type of pattern am I looking at? Identify the pattern (careful not to will a pattern into existence). Next, ask: is this a reversal pattern, or a continuation? In other words, what is the probability, for example, that this falling wedge is going to snap into resumption of the larger uptrend in which it seems to be occurring? And, if you add an MA into the mix: how many periods is the MA? The longer the period, the less likely it is to reflect the same direction that head and shoulders seems to be signaling after trending in the opposite direction. It also depends if you're crossing between TFs (MA up on 1H chart, down on 15 min, taking trade on 5 min, etc.) or analyzing and executing off a single TF.

Whatever the case, trend is primary. Trading on a reversal chart pattern (especially if it hasn't been confirmed) is similar to picking a bottom: something that enjoys limited success next to simply hopping on the coattails of the directional momentum of the larger market. MAs will (soon) follow. Chart patterns are always tentative until they are confirmed; this means they have to be traded on probability, which is a less exact and potentially costly science....

Hi Andrew,

I will have to reread you answers here, because I did not completely grasp it all, but I will.

Here is a copy/paste from Babypips summery that I did not fully comprehend and if you could please explain this particular sentence.


You would then return to your preferred timeframe to make tactical decisions about where to enter and exit (place stop and profit target).

I have no idea where to enter and exit , unless I use market order. How would I make that decision based on the time frame I chose?


Thanks a lot. Sorry if you are busy I can check for your answers later.

[4xStar]

Originally Posted by learningfx

Hi 4xStar,

Some time I can tell the direction of a trend , other time I can not. For instance; If I zoom in Daily chart and most of the chart appears to be up, but very last part oh the chart is down, is it still considerate up, or is it now changing to downtrend?

Thanks

That's what your moving averages are for .. in general you put up a 200 ema and a 50 ema on the daily .. if price is above the 200 and the 50 is above the 200 and both are slanting upward .. it's an uptrend. Check out euro, usd/jpy and usd/chf, zoom out and see what their trends are. If a pair is trending up, then it is usually safer to buy pullbacks on the way up. If it is trending down (50 below the 200 and price below the 50) then you can short retracements as the price moves down.

This is very general .... there are many many ways of trading the trend on the various timeframes. A pair could be in an uptrend on the weekly but a downtrend on the daily ... and then up again on the hourly ...
Also check out this week's weekly lesson in the Main Discussion>>Analyst Arena for another example.

And of course keep re-reading the BP school lessons

Hope that helps

[Andrewunknown]

No problem - I brought up a number of points and then left them hanging in the air there.

On the quote you mentioned:

That section is suggesting to a) begin your analysis with the TF where you actually execute the trade (where you put through your buys and sells, not simply consider them). B) Then, look at other TFs, both longer and shorter, but especially longer. The benefit here is that you'll see how the price has been moving over a greater span of time, which helps you verify - assuming you want to trade with the trend, you are trading against the market. Generally, if a higher timeframe shows a trend different than what you plan to go long/short into, it might be a good idea to reconsider the trade. If the longer TF(s) confirm the direction in which you were thinking of trading, you can C) fine-tune your entry (make a "tactical decision") on the shorter TF where you intend to trade from. So, you come full circle after having a look at the other TFs. Sometimes, the longer TF will discredit the trade your contemplating, but present another opportunity.