Noticing differences in volatility between different time frames I’ve become concerned that if I buy for example in a one week time frame expecting a slow gradual sweep, the actual market could be making drastic swings in the 5 minute time frame for example that I wouldn’t even see indicated. That’s fine, but can these 5 minute chart swings trip my limits in my one week chart, or do the limits ONLY apply to the time frame I made the trade in? In other words can I be tripped out by swings I can’t even see in my longer time frame chart?
For any given currency pair, there are two (and only two) price streams: Your broker’s BID price, and your broker’s ASK price. There [B]are not[/B] different price streams for different time-frame charts. Therefore, volatility cannot be different from time-frame to time-frame.
[B]If volatility [I]appears[/I] to be greater on lower-time-frame charts, it’s only because you are looking at a “magnified” view of the price action on that lower-time-frame chart.[/B]
All of the price action appearing on a lower-time-frame chart is “contained” within the candles (or bars) of the higher-time-frame charts. Each candle on a 1-hour chart, for example, contains the price information of twelve 5-minute candles.
• The OPEN price on each candle on the 1-hour chart is the OPEN price on the [I]first[/I] of the twelve
5-minute candles contained within that 1-hour candle.
• The CLOSE price on each candle on the 1-hour chart is the CLOSE price on the [I]last[/I] of the twelve
5-minute candles contained within that 1-hour candle.
• The HIGH price on each candle on the 1-hour chart is the highest HIGH reached on [I]any[/I] of the twelve 5-minute candles contained within that 1-hour candle.
• And the LOW price on each candle on the 1-hour chart is the lowest LOW reached on [I]any[/I] of the twelve 5-minute candles contained within that 1-hour candle.
Therefore, if your methodology relies on trading a higher time-frame — that is, if you choose your entry point, your profit objective, and your stop-loss price based on the market structure and price action you analyze on that higher time-frame — then you can be confident that all the volatility you might see on a lower-time-frame chart is simply noise which is contained and hidden [I]within the candles[/I] on your higher-time-frame chart.
[B]If your analysis is correct on the higher-time-frame chart, then you can ignore all that noise.[/B]
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Just spend more time and work in front of the charts and there you will see that there is no difference in volatility when you are looking at different time frames.