We firmly believe in using a minimum of three time frames to map out the types of trades that you want to make.
The reason is: we feel like this is the best way to determine short-term, medium-term, and long-term trends.
Main Trend
The lengthiest time frame will be what you should use to determine the main trend for any specific trade that you are making. It will provide you with the best idea of what is going on in the currency pair on a long-term basis. An example may be to use the daily chart to see if your pair is above or below the 200 SMA. In the example below, the USDJPY daily chart is trading above the 200 SMA, which indicates a strong uptrend.
Current Market Bias
The medium-term trend is another good one to look at. What you are looking for here is the market bias about the specific pair that you are examining. A 4-hour chart can be useful in determining current market bias. On the same USDJPY time window, this time in a 4-hour chart, we can confirm that there is clearly a strong uptrend.
Entry and Exit Points
You will use the shortest time frame chart to determine your entry and exit points. In the USDJPY 1-hour chart with the RSI, we can start to pick nice entries.
Time Frame Combinations
It is not necessary to stick with the combinations of time frames that have already been laid out here. There are other combinations that you may opt for instead.
The most important thing is that you have a short-term, medium-term, and long-term selection within your choices. That will help you see the full picture.
Depending on how long you hold trades, you might be inclined to use the following combinations of charts:
- 1-minute, 5-minute, and 30-minute
- 5-minute, 30-minute, and 4-hour
- 15-minute, 1-hour, and 4-hour
- 1-hour, 4-hour, and daily
- 4-hour, daily, and weekly
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