The importance of using larger time frames for Forex trading strategies
Friday, December 25th, 2009
A larger time frame can be considered any time frame larger than the one you are looking at to identify a trade entry.
There are valid trading techniques and methods for almost any time frame however it is always important to be aware of what is actually taking place on the larger time frames such as the four hour and daily charts.
Support and resistance are key levels we must always be aware of even if we trade on a five or 10 minute chart.
Often times day traders will use a smaller timeframe to identify entries and profit targets and their focus becomes myopic and they no longer look at the larger four hour and daily charts.
I would like to discuss an example of using the four hour and daily charts to determine whether or not the market is trending or inside of consolidation which often times can be found using the larger time frames.
Knowing where support and resistance is on the daily or four hour chart isn?t always possible to see using the 30 minute chart. Always giving the larger time frames a quick look before making a trading decision will work in your favor.
When I conside entering a trade on the 30 minute chart (for example) price might be inside consolidation. When it appears price may be making a move, however looking at the daily chart might show a significant old resistance level that is now possibly acting as a support level, if only temporary. This daily support level might not noticeable on the 30 minute chart by itself.
Identifying this support level on the daily chart keeps me from making a trade decision to quick without looking for confirmation.