How to trade using multiple time frames (based on the current example of EUR/USD market)


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anikolov
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How to trade using multiple time frames (based on the current example of EUR/USD market)

The single European currency tried to rally last week but failed at the indicated Fibonacci pivot at 1.2870 and declined again. If you take a look at the daily chart, you will see a nice pattern of lower lows and lower highs. You will also see that the prices are below the declining 21-day moving average. All that tells us that EUR/USD is still in strong Short-Term downtrend. And that is not surprising considering the negative news from Europe. Actually it is surprising that EUR has not declined much more considering this news.

Now, if you go to the weekly chart, you will see a different pattern. Here the trend is sideways and the market is oversold. Thus the message from the weekly chart is different: it suggests EUR may find a bottom soon and stage a nice rally.

Most of the investors and traders are only focused on the time frame that they trade. However, the most approriate way to approach the markets, is to look at multiple time frames. If you take a look the larger-degree pattern, you will know the context of the moves that you observe on the smaller time frame charts. For example, if you trade on the daily chart, you will make your decisions on the daily chart. But it is useful to know what the weekly chart is telling you. If you day-trade and take your decisions on 10-min chart, then before you make each decision, it is always worth taking a look at the 60-min chart. Otherwise, you are always under the hype of the current move that you observe right now.

Going back to the EUR/USD case, one can say confidently that the Short-Term trend (the one on the daily chart) is down. But, since the trend on the weekly chart is sideways, we should be more careful when trading from the short side. Actually, I now look for signs that the current decline is nearing its end. To signal that, a rally above 1.2870 and then abv 1.3070 should develop. Obviously, it is still early to say that EUR has bottommed. But what I am trying to tell you, is to be open-minded, to look at your charts and always to pay attention to one-larger degree time frame when making decisions. You may find trends that are different from those that are on the news today and that everyone is talking about. Having said that, my charts tell me the European currency will likely survive despite the negative talk we are hearing every day.

So, that’s my small education for you this week based on the current example of EUR/USD market.


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