In today forex faq, we have a question from one of our fellow readers asking me how I usually deal with situation where there are different analysis on different time frames.
Below is the question:
Hi it seems like as I place one foot ahead something comes that make me go two steps back.
Time frames and indicators.
I tend to trade 15 minutes but first start with daily to grab yesterdays highs and lows then through out the day I monitor the 15 min, 1 hour and 1minute.
I tend to find myself using cci or macd with rsi. often times I have noticed that choosing different time frames causes these indicators appear to be disagreeing with each other. I just cannot make sense of it.
On the 15 minutes time frame, the Macd would be in a oversold position, cci is moving down from the middle and rsi is starting to point down too. Yet when I click on the 15 min or the hour time frames the indicators just dont make sense any longer as sometimes they show the opposite presentation which really gets me confused so I place a trade by giving up then choose the 15minutes to trade.
which time frame should I trust with indicators?
I bet this is something that is in the head of most of you guys here right. In fact, this is also the question I have in my head when I am new to trading but there is no one out there who is willing to help me answer the question or should I say that there are too many marketers out there who can’t answer the question well enough.
Just in case some of you guys here do not understand the question above, let me elaborate a bit on it.
For example, when you look at your 15 minutes chart, you see that the MACD and RSI are pointing to a BUY trade. MACD flips up is a sign of upmove and RSI oversold is also the same signal.
But when you move up to the hourly chart, some of the indicators are actually pointing to a SELL. The MACD here is down with good angle and separation which means that the down move is with strength
When you move up to the 4 hourly chart, it also gives you contradicting signal
These are contradicting signals that make a trader confuse as you do not know which one to trust.
In fact this is a very common situation that all of us will have encountered before.
Trust me, if you were to wait for the 15 minutes, hourly and other time frames to be aligned to tell you a direction to trade, you will hardly get any trade a month.
Therefore what I am sharing with you here is based on my very own trading experience. For me, I simply use the higher time frame like the daily, 4 hourly and hourly chart to tell the overall trend of the market.
For example, when the daily chart is showing sign of strong downtrend, the 4 hourly chart is showing sign of downtrend while the hourly chart is showing sign of uptrend.
I will conclude that the overall trend is DOWN for the currency.
What I will do is then to move to the 15 minutes chart to look for selling opportunity.
The higher time frame is a good place for us to look for the overall trend of the market. It is very important for us trader to know the trend of the currency pair we are trading as trading in the direction of the trend will gives us a very good risk reward ratio for that trade.
The lower time frame is a good place for us to look for trading opportunity and entry signal as it will give us a more precise entry as compared to the higher time frame.
In other words, I only use the higher time frame as a tool to find the major support and resistance as well as the trend while I use the lower time frame as a tool for entry.
I hope that I have answered your question and do feel free to email me if you have any question.