Rick Wright
Online Trading Academy
Hello traders! This week, my Lesson From the Pros will show how to use multiple time frames to trade the Forex market. In the grand scheme of Online Trading Academy’s core strategy, we recommend using three time frames to help make your investing and trading decisions, whether you are trading stocks, Forex, Options or futures. Our first time frame, or largest time frame, is to determine where we are in the ‘big picture’, essentially showing us where the biggest institutions are trading. Our next time frame down shows us our direction/trend between these institutional levels. And our third or smallest time frame show us smaller supply and demand zones so we can join the trend in between those massive large time frame levels. Pretty easy, huh? Let’s get into a bit more detail…
Now, the difference between these levels for multiple time frame analysis is usually a factor of 4, 5 or 6 depending on circumstance. What this means is that if you are using a monthly Forex chart for your largest time frame, divide the monthly by 4, 5 or 6 to find your next lower time frame. Obviously, a weekly goes into the monthly 4 times, so there is the next logical time frame down. A daily chart would then go into a weekly chart 5 or 6 times, depending on the market you are looking at (24 hour markets that start on Sunday would be 6, but stock traders would still use daily as there are 5 trading days in the week.)
For the following example Forex trade, I am using the EURJPY Daily, 240 minute, and 60 minute charts.
On this daily Forex chart for March 8, the EURJPY fell into an obvious demand zone from February 8. After about a two week rally, this pair fell dramatically back to our zone, which now shows us a larger time frame supply zone. We are now looking to trade between these levels.
There is an obvious downtrend from March 3 to March 8 marked on this chart using a series of red arrows showing the lower highs and lower lows of the downtrend. Personally, I’m not a fan of going long in a downtrend no matter how strong the demand zone the trend hits, but many of our more aggressive students and instructors will. To do this, your first entry could have been at the demand zone from the daily Forex chart!
As I said, I’m waiting for the trend to change direction which is marked by the blue arrows. When we have higher lows AND higher highs, an uptrend has formed and it’s time to go long…but on the next time frame lower which would logically be the 60 minute chart when using our 4, 5 or 6 ratio. Don’t forget, we always want to use at least a 3:1 reward to risk ratio on our trades, which has been covered quite a few times in these newsletters. Entering your long trade at approximately 124.50, with a stop below the zone around 124.35 would have given you only 15 pips of risk. Having ONLY a 45 pip profit target on this trade would definitely have worked out, but there was so much more room in this Forex trade if you let it run!
Read the original article here - Deeper Into Multiple Time Frames
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Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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