What the currency strength indicator reveals in multiple timeframes

What the currency strength indicator reveals in multiple timeframes

In the second part of this morning’s webclass David explains how to use the currency strength indicator in multiple timeframes and what it reveals to help you understand the price cycle of mean reversion.

00:13

Introduction to multi-time frame analysis

00:13

The speaker greets the audience and confirms their microphone is working. They prepare the workspace and reference a previous discussion by Anna about the 60-minute chart for the Australian dollar, indicating they will begin by reviewing that chart.

00:55

Aussie dollar resistance and volume points

00:55

The speaker analyzes the Aussie dollar on a five-minute chart, noting it was trading near the volume point of control with strong resistance just above 71.50. They emphasize the importance of using multiple time frames in trading, as it provides varied perspectives on volume and price analysis, which is crucial for informed decision-making.

01:31

Volume indicators and accumulation distribution

01:31

The segment explains various trading indicators used to analyze market sentiment and volume. It highlights the trend monitor’s ability to show volume points of control and resistance/support levels through histograms. The accumulation distribution indicator is also mentioned as a tool for identifying important price-based levels. The discussion then shifts to chart analysis, contrasting a 60-minute chart with a 5-minute chart for intraday trading. It emphasizes the importance of recognizing resistance levels, such as around 71.50, which have been tested multiple times, to make informed trading decisions, especially for those trading on shorter time frames.

02:28

Significance of 60-minute chart over 5-minute

02:28

The speaker emphasizes the importance of considering multiple time frames in trading, highlighting that a 60-minute chart provides more significant resistance information than a five-minute chart. They explain that relying solely on short-term charts can miss critical resistance levels seen on longer time frames. Using multiple charts, ideally three or four, offers a more complete perspective and helps reveal important market dynamics that single time frame analysis might overlook.

03:29

Weighting time frames in currency heat map

03:29

The speaker explains the importance of weighting charts based on the timeframe being traded. Events on slower timeframes carry more significance than those on faster ones, which affects how currency pairs move. This concept is similar to the currency heat map, where pair movements are weighted by timeframe significance, causing slower movements. The example given is that a support or resistance level identified on a one-minute chart is less significant than if it appears on a five, fifteen, thirty, or sixty-minute chart, influencing the perceived market indecision currently observed.

04:30

Current currency volatility and congestion

04:30

The discussion focuses on recent currency market movements, highlighting the Australian dollar’s weak rally and the Japanese yen’s strong spike. The US dollar shows mixed, sideways action across various pairs, including cable, Aussie, euro, Canadian dollar, New Zealand dollar, and Swiss franc, with notable volatility and congestion patterns. Volatility candles indicate potential reversals or continued congestion. The speaker advises traders to take profits when volatility triggers occur, especially when scaling out positions, while single-lot traders should close out profitable trades. The pound is beginning to show movement as the London trading session commences around 8 AM UK time.

06:15

Trading strategy: scaling out profits

06:15

The speaker reviews the speedometer indicator showing some upward movement, with trading activity in green and orange, but notes a lack of clear direction. They switch workspaces to analyze the Aussie Swiss pair, then shift focus to the New Zealand Yen pair. Observing multiple short-term time frames, they note a strong sell signal. On the daily chart, the market is in a tight congestion zone, trading around the volume point of control with little movement.

07:23

Trend development in NZD and GBP pairs

07:23

The speaker discusses building support and resistance levels on the chart, highlighting recent volatility in the pound-yen daily chart. Attention shifts to the pound-new zealand currency pair, noting a strong movement with the pound rising and the New Zealand dollar falling, indicating a fast-developing trend. The analysis includes shorter timeframes like 15 seconds and 1 to 3 minutes, observing rapid price action and a volatility trigger suggesting potential congestion or a trading opportunity.

08:17

Further examination of volume and price movement on the 5-minute chart confirms the strong buying pressure on the pound and selling on the New Zealand dollar, reinforcing the ongoing trend. Volume analysis shows strong activity at the breakthrough points and low volume ahead, supporting the trend’s sustainability. The speaker emphasizes the steep and fast development of this trend without signs of immediate reversal.

09:28

Some minor selling pressure appears with wicks forming on the candles, but overall volume remains low, which supports the continuation of the trend. The use of trend monitors shows a stable trend environment, with blue indicators signifying favorable conditions. The speaker refers to multiple CSR (likely a technical tool), continuing to analyze the chart setup and confirming the current market structure.

10:16

Minor reversals and trend oscillations explained

10:16

The speaker discusses trading timeframes, focusing on five, ten, and fifteen-minute charts. They note that while the five-minute chart shows some movement, the ten-minute chart indicates a significant trend with potential to move higher or lower, though no guarantees are made. On the one-minute chart, there’s a setup showing strength moving toward overbought and weakness moving toward oversold, suggesting a possible minor reversal where prices may dip before rising again.

11:05

The explanation continues on how minor reversals appear on shorter timeframes like the three and five-minute charts, showing small dips or ‘kinks’ before resuming the primary bullish trend. This flattening or brief pause represents typical market behavior where prices temporarily pull back but then continue moving in the main direction, offering traders insight into trend continuation despite short-term fluctuations.

11:31

The speaker elaborates on the forex market as an example of mean reversion, where prices oscillate between overbought and oversold states repeatedly. Unlike a static oscilloscope signal, forex prices shift over time but maintain the pattern of moving up and down around a changing midpoint. Understanding this cyclical behavior helps traders identify time frames and opportunities by recognizing the constant process of price oscillation and trend shifts.

12:34

Time frame focus and trading window analogy

12:34

The speaker emphasizes the importance of clearly defining your trading objective and time frame before entering a trade. Whether you are scalping on a 1-3 minute chart or holding a position on a 10-minute chart for about an hour, you must understand the nature of price movements within that window. Trends are not straight lines but consist of rises and pullbacks, which are more visible on faster time frames. The analogy of a racehorse wearing blinkers is used to illustrate the need for focus on your personal ‘finishing line’—the exit point of your trade—while ignoring distractions outside your chosen time horizon.

14:27

Early signs of market pullback

14:27

The speaker describes the price action entering an oversold condition, leading to a slight downward kink in the chart. This subtle flattening indicates a potential shift in momentum, visible beneath the yen, signaling that the steep upward trend is beginning to ease.

14:53

The trend line, though still pointing upwards, shows a reduced steepness, suggesting a slowing climb. Shorter time frames like the 10-minute chart have yet to reflect this change, indicating that if this is a minor pullback, the longer-term uptrend may continue without significant disruption.

15:20

If the pullback does not extend into other time frames, the chart will likely show only a brief dip or minor congestion before resuming its upward movement. The speaker notes that the current downward kink is significant, being halfway down in this time frame, which may lead to a leveling off in the climb’s steepness.

15:49

The leveling off seen on the chart reflects a reduction in the climb’s inclination across multiple time frames, progressing from the 15-second up to the five-minute charts. This sequential confirmation across time frames suggests the momentum is slowing consistently rather than abruptly.

16:20

Using indicators for entry and exit decisions

16:20

The speaker analyzes a price chart where a candle with a large upper wick and good volume below signals weakness, indicating a lack of strong follow-through. Despite a quick upward move, a pullback develops, reinforcing the importance of using multiple charts and indicators for comprehensive information to aid trading decisions, especially for timing exits.

17:23

The discussion emphasizes that entering trades is easy, but exiting or scaling out at the right time is challenging. The speaker reviews multiple time frames, noting that price has passed through a volume profile area and minor support, with the trend monitor showing red, indicating a weakening trend.

17:52

Managing positions with multiple time frames

17:52

The speaker explains how transitional changes in color are reflected in the one-minute timeframe, with no immediate changes expected in the three- or five-minute frames. This is relevant for slower-term traders who view short-term pullbacks as trading opportunities. The discussion emphasizes managing positions by analyzing multiple timeframes and interpreting indicator signals to gain a broader perspective on market movements.

By Anna Coulling – creator of volume price analysis