We often see a lot of arguing what time frame to use while trading, some insist on using short term charts, while others suggest that short term price movements is just a noise and can’t be relied on. Although it depends on the strategy, whether you are a scalper or a swing trade, the combination of several time frames is still the best option of all. The reason for that is easy – while the longer time frames help you to determine the direction of the main trend, and major support resistance levels, the 1- or 5- minute charts will help you find the best entry point.
Here is an example with EUR/USD pair:
Even though the medium term chart has turned bearish, in the longer term we are still in the bull mode. So, you decide to go long EUR at some point. So, you start the analysis with a 4- and 1-hour charts.
On the chart above you see the first signs of a possible turnaround – a MACD divergence and that the price is testing resistance point. Being an experienced trader, you understand that if the price breaks above the resistance at 1.4680, then according to Wyckoff Schematics it can run as high as 1.4900. So, you don’t want to miss the train. You start looking for an entry point with the best Risk/Reward ratio and zoom to the 15-minute time frame.
The 15-minute shows us that a reversal is highly possible, and in fact the price has already tested the resistance at 1.48. Now it has pulled back to a 50% Fibonacci retracement, making 1.4650 a perfect spot to enter a long trade with a good R/R ratio.
The last step is enter the trade. For that you zoom to 1-minute chart and place a buy order somewere between 1.4652 – 1.4647. Then you place a tight stop of 15 pts.
The trade above has not only great R/R potential, bu it is also a stress free one:
- You know that your odds of winning are high.
- You have a predetermined stop in place, which protects you from further losses in case things go wrong.
- This short term trade has a potential to become a swing trade with more than 1/10 Risk/Reward ratio.
In conclusion, I’d like to add that this is the type of trades you want to make each time – stress free, with high reward potencial. There is no need to rush in every trade you see, just be pacient enought to look for the best ones, and you’ll see your account growing expotencially.
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As for the next week, I am looking for longs. The sharp sell off in the EUR is also indicates a high possibility of a rebound. My target on the pair would be ~1.47.
