Chapter 6: Using Multiple Time Frames

Traders of virtually every account size and risk tolerance trade the forex market. At any given moment, short-term scalpers and long-term fundamental analysis traders are looking at the same currency pairs and are trying to figure out how to place or adjust their trades. However, while they may be looking at the same currency pairs, they are not looking at the same chart timeframes. Short-term traders are most likely looking at 5-minute to 15-minute charts, while long-term traders are most likely looking at daily to monthly charts.

Trends, support and resistance lines, and technical indicators look much different on a 1-minute chart than they do on a daily chart. For example, you may look at a 1-minute chart of the EUR/USD and see that the pair appears to be in a downtrend. If you adjust your chart to a daily setting, you may see that the currency pair has been in an uptrend for weeks. So which chart is correct? Is the EUR/USD in an uptrend or a downtrend?....depends on your trading timeframe.

Forex traders trade with a bias toward the long-term trend. It has had a longer time to establish itself, and it will take a large breakout to change its direction. Obviously, if you see the fundamentals changing for a currency or a news announcement affecting a currency, you can trade against the long-term trend if you use good risk management. You should always be alert of trends and the support and resistance levels across multiple timeframes. This allows you to identify how strong various trends are. Using multiple timeframes on your charts helps you fine-tune your technical analysis.

You should analyze the following three charts in your technical analysis: Trend Chart (long term), Signal Chart, Timing Chart (short term). Once you have analyzed each timeframe, you can combine them to confirm a high-probability set up.

The trend chart helps you identify the main trend that you should seek to trade with. If the currency pair in the trend chart is trending upward, you should be looking to buy the pair. If the currency pair in the trend chart is trending downward, you should be looking to sell it. To identify the timeframe that you should use for your trend chart, you first need to identify the timeframe you normally use on your trading (signal) charts. Once you have identified the timeframe of your signal chart, you should go up one timeframe to find the timeframe you should be using on your trend chart. The following is a list of common signal-chart time frames you can use to identify the appropriate time frame for your trend chart:

1-minute signal chart	=	15- to 30-minute trend chart
5-minute signal chart	=	1-hour trend chart
15- to 30-minute signal chart	=	4-hour trend chart
1-hour signal chart	=	1-day trend chart
1-day signal chart	=	1-week trend chart
1-week signal chart	=	1-month trend chart

For example, if you typically trade the EUR/USD looking at a 1-hour chart, you should use a 1-day chart for your trend chart. If you typically trade the EUR/USD looking at a 15-minute chart, you should use a 4-hour chart for your trend chart.

Once you have identified the timeframe you should use for your trend chart, all you need to do is determine what the prevailing trend on the chart is. You can use diagonal support and resistance levels or moving averages to identify the trend. You can see on our weekly EUR/USD that both the diagonal support level and the moving average indicate that this currency pair is in an uptrend.

IF THERE IS AN UPTREND on your trend chart, you should be looking for buy signals on your signal chart. If there is a downtrend on your trend chart, you should look out for sell signals on your signal chart. Once you have identified the trend, you now need to identify profitable trading signals.

The signal chart is your most important chart. It provides the trading signals that tell you when to look for buying and selling opportunities based on the trading system you use. For example, if you typically use the commodity channel index (CCI) to help you identify trading signals, you will use the signal chart here. You will not use the indicator on the trend chart.

USING A SIGNAL CHART together with a trend chart allows you to more accurately identify potential profitable trade signals. For example, if your trend chart shows the currency pair is in an uptrend, you should only look for buy signals on your signal chart. The best way to take advantage of a longer-term uptrend is to buy the currency pair. If your trend chart shows the currency pair is in a downtrend, you should only look for sell signals on your signal chart. The best way to take advantage of a longer-term down trend is to sell the currency pair.

The trend chart allows you to ignore the less profitable trading signals that you see on your signal chart. Since these trading signals are going against the longer-term trend, they are most likely to be unprofitable. Now that you have identified your trading signals, you need to determine exactly when to enter and exit your trades using your timing chart.

The timing chart helps you time exactly when you should enter and exit a trade. Every pip counts when you are a forex trader so the more accurate you are with your entry and exit points, the more profits you earn for your account. The following is a list of common signal chart time frames you can use to identify the best timeframe for your timing chart:

1-minute signal chart	=	Tick timing chart
5-minute signal chart	=	1-minute timing chart
15- to 30-minute signal chart	=	5-minute timing chart
1-hour signal chart	=	15-minute timing chart
1-day signal chart	=	1-hour timing chart
1-week signal chart	=	1-day timing chart
1-month signal chart	=	1-week timing chart

You can use one of the following two methods when pinpointing your entry and exit signals on your timing charts:

Identify the trend plus support and resistance if you see a buy signal on your signal chart, you want to see the currency pair in an uptrend on the timing chart. You also need to see that the pair price is closer to support than it is to resistance. This tells you it has room to move higher before hitting resistance. Of course, if it has just broken up through resistance, it could continue to move higher.

If you use a technical indicator like the commodity channel index (CCI), on your signal chart to generate buy and sell signals, you can also use that same indicator on your timing chart to help you identify when to enter or exit your trade. For example, if you did use the CCI on your signal chart and it gave you a buy signal, you would add the CCI to your timing chart and make sure it was giving you a buy signal on the timing chart as well. If the CCI is not giving a buy signal on the timing chart, you should wait until it gives a buy signal on the timing chart before you enter the trade.