In today forex faq, I shall be talking about how I make use of the lower time frame when I am trading the higher time frame like the daily chart.
Below is the question from one of our fellow trader:
When you trade the daily chart, how do you make use of the lower time frames? How would you know when the trend is changing?
Let says that you are trading with the daily chart which means that you will use it to look for any trading opportunity. The lower time frames like the 4 hour and hourly chart will be very helpful to help you find a good entry opportunity. As you know, a single candle on the daily chart is equivalent to 24 candles on the hourly chart.
With more candlesticks, you will be able to make a better analysis for the market movement and thus gives you a better entry.
For example: you are trading the trend and you see that the price is moving up on the daily chart.
You should now move to the 4 hour chart to check if it is a good time to make your entry now. What you should be looking for is for the market to hit oversold on the 4 hour chart as you will be able to SELL THE RALLY in a downtrend. You can make use of forex indicators like the stochastic or RSI to help you identify overbought or oversold.
You can also place your stop loss based on the lower time frames as it will give you a lower stop loss compared to placing it on the higher time frame.
As for the changing of trend, it can be done with the help of candlestick patterns or you can also make use of the Fibonacci levels. If you have watched my forex trading signals video, you will find that I use the 0.382 Fibonacci level to tell if the market is going to reverse or retrace.
However there is no 100% way to tell if the market is going to reverse, with the candlestick pattern and the Fibonacci, you can only predict the market reversal with a certain amount of accuracy as the forex market cannot be 100% predicted.