Dr. Woody Johnson
Independent Analyst
Having a bird’s eye view is a great way to get a wide swath of valuable information in life with regard to making decisions that have major impact upon things like health care, diet, home structure, etc. Peering through a larger lens helps to pull in additional important information to help choose directions that support more effective efforts at living the kind of life that you and your family desire. It is not much different with regard to the complexities of the trade. At the 35-thousand-foot level there are so many additional vantage points within view as you identify the salient pieces of information to assemble your trade plan.
Trading with Monthly Time Frames
In this brief article, I’ll be focusing on the monthly time frame as one of the ways to address the big picture in your charting. I have, and many traders still do, use the 15 – 30 – 60 – and 240-minute time frames to prepare, plan and execute the trade. To be clear, the small time frames can and do provide solid detailed data regarding the trend, supply/demand zones, the curve and entry, target, stop and exit decisions. However, smaller time-frames require more time and energy to trade due to their volatility (which becomes emotionally problematic for many traders). Additionally, the charts have a fractal quality (fractals appear the same at different levels), meaning that as the charts show elements of price-action movements in the smaller time frames so do the larger time-frames and, for a trend trader, this is golden.
4 Examples of the Benefits of Monthly Time Frame Trading
-
As a trend following trader, you’ll want to avoid sideways trends that are stuck in a range. This condition can be identified fairly quickly on a monthly chart. On the other hand, you can see the possibility of trends forming and you can analyze the overall market direction that would include which way stocks or currencies are proceeding. This is harder to do in smaller time frames.
-
Monthly charts can assist in supporting emotional management – an extremely important part of self-discipline. This is accomplished because you aren’t constantly bombarded by the huge, fast, volatile moves that happen on a daily basis in smaller time-frames. As you take a step back, you are able to detach more effectively from emotions and direct your decisions to which way the markets are trending. This added calm can also increase confidence when scouring for trading possibilities.
-
You are better able to see past false moves on a monthly chart. There is a lot of indecision at smaller time frames and traders can often become tricked into thinking the overall direction of the currency or stock is changing when so often this is not the case. By looking at the monthly chart, you can see that the chart is just experiencing a pull-back; a common occurrence in all markets.
-
Using monthly chats can help increase profit potential. The average trader can make a few pips from time-to-time on smaller time frames and never take advantage of compounding. There are throngs of traders that are happy to get a 30 pip move a day, and if that’s you it could be a wonderful thing. But, consider the potential of having up to 5 positions running on a long-term trend.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Japanese Yen adds to strong gains and drags USD/JPY to 155.00 amid hawkish BoJ bets
The Japanese Yen extends its steady intraday ascent through the Asian session on Monday, dragging the USD/JPY pair to the 155.00 psychological mark in the last hour. Against the backdrop of the recent shift in rhetoric from Bank of Japan Governor Kazuo Ueda, an improvement in business confidence reaffirms market bets for an imminent rate hike this week.
Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Gold stuck around $4,300 as markets turn cautious
Gold loses its bullish momentum and retreats below $4,350 after testing this level earlier on Monday. XAU/USD, however, stays in positive territory as the US Dollar remains on the back foot on growing expectations for a dovish Fed policy outlook next year.
Solana consolidates as spot ETF inflows near $1 billion signal institutional dip-buying
Solana price hovers above $131 at the time of writing on Monday, nearing the upper boundary of a falling wedge pattern, awaiting a decisive breakout. On the institutional side, demand for spot Solana Exchange-Traded Funds remained firm, pushing total assets under management to nearly $1 billion since launch.
Big week ends with big doubts
The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.