Higher Timeframe Confirmation Is Important In money Trading
You need to learn the art of trading multiple timeframes. It is like zooming in and out of a picture in order to see what is clearly happening to the market. If you find a trend on the lower timeframe confirm that on a higher timeframe. Many traders make the mistake of trading on only one timeframe. This only makes them waste their time and energy and make losing trades.
Suppose, you find the trend on the intraday chart and the trend on the daily chart in the same direction, it is like having the wind at your back. If you can master the art of identifying money pairs that have the intraday trends in the same direction as the daily and the weekly trends, you can reap immense rewards.
If you are trading the hourly chart, look for confirmation on the 4 hourly chart. If you are trading the 15 minutes chart, look for confirmation on the 60 minutes chart. And if you find a good signal on the daily chart, look for confirmation on the weekly chart.
So, as a rule of thumb, first look for a trade setup on the intermediate term timeframe. If you find a possible trend reversal in the making, look for confirmation on the longer timeframe. The longer term timeframe should also be showing signs of a possible trend reversal like a stochastic cross or a doji. Now, shift to a shorter timeframe for a signal in the same direction.
Now, when you view charts, always use the proper amount of time in order to make correct trading decisions. The preferred time for each chart should be:
Monthly Charts: 7 years,
Weekly Charts: 2.5 years,
Daily Charts: 8 months,
4 Hour Charts: 1.5 months,
1 Hour Charts: 10 days,
15 Minutes Charts: 28 hours,
5 Minute Charts: 8 hours.
Coordinating Timeframes method seeing trade setups on the higher timeframe and then waiting for the trading signal in the same direction on the lower timeframe. So, once the signal comes on the lower timeframe, you should again check the higher timeframe to confirm that that initial indications that warranted the trading signal are nevertheless in place.
Downside to this higher timeframe trend confirmation occurs in a counter trending market, a sideways market or a trend reversal. If you use the higher timeframes to confirm a reversal, you will miss it, as it happens on the lower timeframes first. That is why it is very important for you to understand the difference between trend trading and counter trend trading.