Today I was watching a 15 min. chart on the EUR/USD when I saw a perfect “hanging hammer”. As taught in this course, the market changed direction. However, I decided to pull up different charts (e.g. 30 min., 5 min.) and the hanging hammer wasn’t obvious. If I would have used either of these other charts I would have missed the move. So my question is “How do you know which chart to use that most accurately reflects what the market is about to do?”
What a loaded question. Lets first start with the easy questions. There really is now way to accurately predict what the market is going to do. The best you can do is find high probability set ups and see if they work. As for what time frame you should be using that is all a matter of personal choice. Depending on how much time you have will really decide what time frame you use. I for one only make trades off the daily and sometimes off the 4h because I don’t have time to be checking charts except for maybe once a day so that works out well for me. However, if you have a good solid block of time to be looking at charts during a high volume time then you should be able to knock the time frame down and trade off that. Also, whatever time frame you use to make your trades you should be using lower time frames to confirm your position and watch the higher time frames to confirm your position or to see if your position will be confirmed by those. For example say I enter off the 4 hour chart. Then I am really interested to watch the daily chart to see if my entry is also triggered on there. If it is then things should be all gravy. If it isn’t then I need to keep an eye on the 4h for a proper exit point.
What I do is start of the biggest time frame and move down
weekly chart- draw my support resistance levels, see if there are any trading channels etc
then move to daily- repeat what I did for weekly
move to 4 hour chart- see if there are any identifiable patters, line of resistance /support look at the indicators for the 4 hour chart
move to 1 hour chart - look at my indicators on that one and if i see a possible entry point
then I go to the 30 min chart to plan my entry and exit
just like swordofrue said… you can not predict 100% correctly where the market will go but you could “stack the deck in you favor” as if you were playing a card game
That is a very good question, and it is one that had me stumped for a while. Actually, it still sometimes has me stumped. The blog on the “Cowabunga” system is a good read for a first look at which timeframe to use and why. They use the 15 minute and 4 hour charts, and explain their reasons for doing so.
I have found that the indicators work for all charts, except when you get to very small timeframes because they are more succeptable to up and down “noise”, where the larger charts see the bigger picture forming.
I think of it this way, a 15 minute chart has 96 candles in a 24 hour period. Where if you look at a 1 day chart, each candlestick represents 96 15-minute candlesticks. You can see the start/end/high/low from a single candlestick, but you don’t know how many times that candlestick was traversed up and down. Signals that exist in smaller timeframes disappear into a single candlestick on larger timeframes. And if you could have a monthly chart, each candlestick would contain information for 30 days, obscuring daily indicators.
I have used timeframes to “force” a trade. Meaning that if I was not happy with the indicators on one timeframe, by switching to another I saw what I was looking for, and entered a trade that I hadn’t fully thought out. I don’t do this any more. Now I kind of view it as a question to “how long do I want to stay in my trade?”. If I want to do intraday trades, I look mostly at a 15 minute chart. If I want to stay in my trade for multiple days, or a week, I look mostly at the daily chart. You wouldn’t enter a long term trade for a month based on information from a 5 minute chart. Sometimes I go up a chart just to get an idea of the direction of the bigger picture.