Brandon Wendell, CMT
Brandon Wendell
When we trade it is all too easy to get caught up in the moment. This is especially true for higher speed intra-day traders. The problem is that when we trade like this, it is like running full speed with your head looking straight down. Sure, you can see the immediate obstacles and dangers, but you cannot be prepared for that large wall that lies directly in your path. If we trade “in the moment,” we will financially run head first into that wall and we know that is no fun.
Trading properly involves eliminating surprises and being prepared for what may come while you have your capital exposed. To do this, we must gain proper perspective to price action and anticipate upcoming events or price barriers that will change the direction. When I first learned how to trade, I was taught to use multiple timeframe analysis. Throughout my trading career I have used many different tools, but this is one technique that I have never deviated from.
Multiple time frame analysis requires a trader to view prices and trend from three separate time frames. Having this perspective allows a trader to better identify opportunities and dangers in their trading. To begin using the analysis a trader should first select their trading time frame. This will be where you plan the critical parts of the trade including entry, target and stop prices. You want to use the largest time frame that you feel comfortable trading on. This allows for larger profits with acceptable risk.
Once I have selected the trading time frame, I need to select another to gain proper perspective. In the Core Strategy Course at Online Trading Academy, we discuss the different modes that the markets operate in. If you are in an impulsive mode of the trend, it will typically end at the supply or demand of the next larger trend. If you are utilizing multiple time frame analysis, then you already have those levels identified.
Chart time frames are related by a factor of five. Therefore, in choosing your intermediate time frame, multiply your trading time frame by five to select the chart period. For example, if trading on a 10 minute chart, use a 50 or 60 minute chart for perspective. If you trade on a daily chart, then a weekly is your natural perspective chart.
The same tactic is used to choose the higher time frame chart. You would multiply the intermediate timeframe chart by four, five, or six to arrive at the time period to set your charts for a proper perspective on price.
For certain entries or to reduce risk, traders may also utilize a smaller time frame to refine their zones. Keeping with the trend relationships here, they should use a period on that chart that is 1/5th that of the trading time frame. You must be careful as a trader that you only rely on this chart for timing entries since the more volatile nature of shorter time frames will tend to scare traders out of great trades from only a small pullback in price. Once you are in the trade, do not look at this shorter time frame again!
The short time frame is extremely helpful to get confirmation on entering your trades at supply and demand. As we approach our identified entry price the smaller charts will usually show the reversal pressure first. They may even show a pattern on the chart or candles themselves well before you would see it on your trading time frame. This gives you the early jump on most other traders. Additionally, if you are wrong in your trade, entering earlier will mean that you are closer to your stop price and will lose less on bad trades.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
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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