with the words long-term and primary interchangeable. We
generally refer to a market movement as secondary and
describe the trend that constitutes that movement to be intermediate-
term. Similarly, we measure a primary move by identifying
the long-term trend.
Knowing how to use a higher time frame chart to confirm
a price signal on a lower time frame is a skill that can reward
a trader greatly. Many students will become impatient and
take a trade that is coordinated on the lower time frames,
not on the higher time frames. This is a mistake and often
a waste of time, energy, and, more important, money.
Although you may not always have all the time frames line
up, there will be times when this happens. More often than
not, though, if you are trading an intraday chart and have
the current trend on the daily chart lined up in the same
direction, you are going to have the wind at your back. If you
have the knowledge to identify markets in which the intraday
trends are moving in the same direction as the daily and
weekly trends, you are going to put yourself in a position to
reap a reward.
Here are the time frames we analyze and trade from:
Monthly >> weekly >> daily >> 240 minutes >> 60 minutes >> 15 minutes >> 5 minutes
The different time frames we use must remain three to six
increments apart to maintain continuity:
Monthly/4 weekly chart
Weekly/5 daily chart
Daily/6 240-minute chart
240/4 60-minute chart
60/4 15-minute chart
15/3 5-minute chart
In analyzing a market we never skip over a time frame. If we
are trading off a 60-minute chart, we look to our 240-minute chart
for confirmation. We never jump time frames because we would
lose continuity. If we see a signal on the daily chart, we look to
the trend on the weekly chart for confirmation. If we see a signal
or setup on the 15-minute chart, we look to the 60-minute chart
for confirmation. It is paramount to maintain this continuity.
The collage of charts in Figure 9-9, with the long-term on the
left, the intermediate-term on the lower right, and the short-term
on the upper right, provides an excellent perspective from which
to analyze and trade markets. (For this example we are using
the monthly chart for the long term, the weekly chart for the
intermediate term, and the daily chart for the short term.) Here
we see the market’s stance, with the higher time frame charts
encompassing all the activity on the lower time frame charts.
We’ve overlaid most of the significant support and resistance
levels and trendlines on the charts, along with the MACD,
stochastic, and RSI at the bottom. (For ease of viewing we have
omitted the RSI on the lower time frame charts.) We should
always take direction and identify a trade setup from our
intermediate-term chart, in this case the weekly chart. We can
look to the long-term chart for confirmation or support—though
this is not a prerequisite, particularly if one is day trading—and
use the short-term chart to hasten our entry and exit signals.
Source: Mastering the Currency Market: Forex Strategies for High and Low Volatility Markets
