How to use higher and lower timeframes to discover trends

How to use higher and lower timeframes to discover trends

In this video from this morning’s forex webclass Anna explains how to use higher and lower timeframes to discover trends in the forex markets.

00:10

Using multiple time frames in trading

00:10

The speaker discusses the importance of analyzing multiple time frames in trading, particularly how higher time frame charts can inform expectations on faster time frames by examining price structures. They mention upcoming webinars where these concepts will be explored further, including a session focused on the US trading session, indices, and Forex. The segment concludes with the speaker addressing a question from the chat.

01:17

Commodity currencies and market sentiment

01:17

The discussion explains why the Australian dollar (Aussie) is trending higher, highlighting its status as a commodity currency along with the Kiwi and Canadian dollars. Commodity currencies tend to rise when equity markets perform well, driven by increased demand for raw materials, such as iron ore, which Australia exports heavily to China. Conversely, when markets sell off, commodity prices and thus the Aussie tend to fall. This relationship between commodities and currency value is an essential factor covered in forex trading.

02:28

The speaker emphasizes the importance of starting forex analysis with price action on a single chart and timeframe but then expanding to consider fundamental news and broader market contexts. They introduce a ‘3D’ approach that goes beyond immediate price movements to encompass wider economic and market conditions that influence currency pairs. The Aussie dollar, in particular, reacts strongly to market sentiment, developments in China, and local Australian factors, illustrating the multi-layered nature of currency valuation.

03:31

Setting chart time frames and multiples

03:31

The speaker discusses the use of multiple time-frame charts for trading analysis, recommending starting with at least 2 or 3 charts to understand price movements. They emphasize using multiples of three, four, or five for the chart intervals, avoiding going below three or above five, a guideline attributed to Alexander Elder. The speaker explains their personal setup, which includes three-minute, fifteen-minute, forty-five-minute, and hourly charts to capture different market contexts.

They also note that the choice of time frames depends on the trading platform’s capabilities, with some platforms like NinjaTrader allowing custom time frames, while others like MT4 have limited options.

05:03

Analyzing the daily Australian dollar chart

05:03

The discussion begins with an analysis of the Australian dollar (Aussie) on the daily chart, highlighting its upward trend. The speaker notes a significant move overnight, reflecting overall market sentiment. The focus is on understanding the daily price action and its implications for trading decisions.

05:42

The speaker explains that the current candlestick on the daily chart shows the Aussie is in an uptrend. They discuss the concept of overbought and oversold conditions across different timeframes, emphasizing how price movements on faster timeframes relate to broader trends seen on slower timeframes.

06:16

Further elaboration on the daily chart reveals that the Aussie dollar is being bought while the US dollar is being sold, which aligns with typical market behavior during rising equity markets. The US dollar is described as a safe haven currency that is usually bought during financial stress, explaining its current weakness.

06:49

Attention shifts to faster timeframes where price action may show pullbacks or corrections against the primary uptrend seen on the daily chart. Traders must decide whether to trade these pullbacks or wait for the main trend to continue, balancing short-term fluctuations with longer-term sentiment.

07:26

The speaker discusses the possibility of trading pullbacks as secondary trends, noting that such trades typically capture small gains (5-7 pips). The depth of the pullback and range size influence whether it’s viable to trade against the primary trend.

08:02

For traders who prefer not to engage with pullbacks, the emphasis is on waiting for the primary trend to establish itself clearly. The higher timeframe charts provide crucial support and resistance levels that help determine potential price targets and areas of interest for trading decisions.

08:40

Support and resistance in volume price analysis

08:40

The speaker discusses analyzing price movements using higher time frames, focusing on the 135-minute chart for a clearer perspective. They note a recent pullback indicated by candle wicks and price correction due to overextension. The importance of support and resistance levels is emphasized as essential tools for setting price targets, especially if positive sentiment continues during the U.S. trading session.

09:47

Support and resistance are analyzed not only through price lines but also using volume-based metrics like the volume point of control, which highlights significant reversal areas. The speaker identifies a target price range near 62, suggesting potential for further upward movement if the current correction does not turn into a full reversal. Various chart time frames, including 135-minute and daily charts, are used to refine this analysis.

10:57

The trend is characterized as generally upward, with movements off the volume point of control on the daily chart indicating strength. The speaker notes the typical behavior of markets moving higher with intermittent bursts of momentum and pullbacks, contrasting with faster, more momentum-driven declines. Patience is advised when holding long positions as upward trends develop more gradually.

11:58

Volume price analysis is crucial to validate the authenticity of price moves, distinguishing genuine trends from false signals. The speaker highlights that volume data reveals whether price action is sustainable, underscoring its importance in confirming trends on intermediate time frames like the 45-minute chart.

12:33

Volume price analysis and pullback signals

12:33

The discussion focuses on a potential trading opportunity around the 62 region in the pool on the stream minute chart. Despite this, the strong long-side sentiment suggests caution for quick scalpers. The speaker highlights a lack of consensus between price action and volume, noting falling volume under the down candles and indicating uncertainty about rejoining the trade.

13:39

The falling VIX suggests improving market sentiment. A narrow spread candle with anomalous volume indicates a potential pullback rather than continuation of the upward move. The pullback is expected to be limited, supported by falling volume and other indicators like CSI on faster time frames, signaling that traders may have missed the initial move.

14:39

Traders are advised to consider volume along with price action and support/resistance levels before entering a long position after a fallback. The speaker recommends using volume-based indicators rather than relying solely on price patterns to make informed entry decisions.

15:05

Using Renko charts for trade entries and exits

15:05

The segment explains how a Renko chart, specifically the empty five version, is used to analyze price movements in the Aussie dollar. It highlights identifying pullbacks during a trending move, emphasizing waiting for a break above the high of a specific candle to enter a trade. The importance of observing higher time frames to predict price action in faster time frames is discussed, along with the need to incorporate Volume Price Analysis (VPA) to judge pullbacks worth trading.

16:14

This part focuses on analyzing a shallow pullback on a three-minute chart, clarifying it as a correction rather than a reversal. It suggests using support and resistance levels and higher time frame analysis to determine the trade direction. The concept of price action as a continuum without fixed start or end points is introduced. The segment also explains how combining price structure, VPA, and other indicators provides a roadmap for optimal trade entries and exits.

17:21

The final segment details how the Renko chart’s trend and monitor color changes signal trade entries and exits. It advises entering a trade when both the trend and monitor colors change and exiting when they reverse, allowing for potential re-entries if the trend resumes. The monitor helps traders stay in trades during pullbacks without premature exits, enhancing trade management efficiency.

17:57

Integrating multiple indicators and trading tools

17:57

The speaker introduces David to explain how to interpret various trading tools like arrays, heat maps, and matrices. He compares learning to trade with learning to fly, emphasizing that beginners start with simple instruments and gradually learn to handle more complex systems, much like progressing from a small plane to a large 747. The different indicators provide various information that ultimately guides traders to their goals.

19:01

The session runs over time and will be recorded and segmented for later viewing on YouTube channels related to quantum trading. David is asked to explain the indicators in more detail and provide information about the educational program. The hosts mention upcoming sessions and acknowledge several major religious festivals occurring that week, expressing hope for an end to the health crisis and a speedy recovery for those affected.

20:10

The speaker briefly hands over to David to continue the discussion.

By Anna Coulling – creator of volume price analysis