![]() ![]() If the trader was to just wait until the price had started showing signs of reversing before trying to go short instead of attempting to short whilst the 1 hour trend was up, there’s no doubt he will have had less losing trades and will have saved himself money. But that does not mean the price is moving lower right now and since he places his trades using a time-frame which shows more recent price action it doesn’t make sense to use a time-frame which shows older price action to determine the current trend. Our trader who was using the daily chart was basing his trading decisions on the fact the market had been moving lower on the daily chart for a long duration of time. Which direction is the price moving in right now, that’s what is most important for you when you’re looking to take trades. ![]() What they don’t understand is it doesn’t matter how long the market has been moving up or down in the past, what matters is the direction its CURRENTLY moving in right now.Ĭurrently means now, not last week, not last month and not last year. It’s very similar to using an indicator, people say to use the higher time-frames for trend direction because it shows which direction the market has been moving in for the longest length of time. The bigger the discrepancy between the time-frame you use for trade entry and the time-frame you use for trend direction the more you will be lagging behind the market. The market may be in a downtrend on the daily chart but on the 1 hour chart its in an uptrend and since the 1 hour chart is showing us more recent market action than the daily chart, it makes sense to trade in the direction the price is current moving in. Needless to say the trader is going to lose money on a lot of the sell trades he places because he is trading against a more recent trend. He knows he needs to trade in the direction of the higher time-frame trend so for the whole time we see the market move higher on the 1 hour chart he will be placing sell trades trying to anticipate when a reversal is going to occur and cause the downtrend on the daily chart to continue. On the 1 hour chart which the trader uses for entering trades you can clearly see the market is trending higher with new higher highs and higher lows being made each day.īecause the trader believes the trend on the daily chart is the one he needs to be following, the uptrend we can see on the 1 hour chart is not relevant to him. So long as the current high isn’t broken the trader will think the market is in a downtrend even though the price is actually moving up. Now in order for the trader to see the downtrend change into an up-trend, the price must move above the current high in the image.įor the high to be broken the market must move a large distance, in terms of pips the distance from the current low to the current high is 639 pips. Here’s an example to explain what I mean.įrom looking at the image above we can see USD/JPY is currently in a downtrend on the daily chart.Ī trader who uses the daily chart to get their trend direction and the 1 hour chart for trade entry will be wanting to get sell trades placed in the event of a continuation lower taking place. The biggest issue is you can find yourself losing money because your trading against the current trend. ![]() This wouldn’t be a problem if the time-frames they use are close together i.e using the 30 minute chart for trade entry and the 1 hour chart for trend direction, but issues arise when the time-frames they use are far apart from each other, like using the 1 hour chart for trade entry and the daily chart for trend direction. Traders usually implement this advice in a way where they will use a higher time-frame to get their trend direction and use a lower time-frame for entering trades. Today I’ll explain what these problems are and why it will be better for your trading if you determine the trend using the time-frame you place all of your trades off.Ī lot of the common trading advice states you always need to be trading in the direction of the higher time-frame trend. Its assumed this is the correct way to trade the trend, but people fail to see the problems brought by using opposing time-frames for trade entry and trend direction. People say they always trade in the direction of the trend but if you ask them which time-frame they use to get the trend direction off and which time-frame they use to enter their trades, you’ll find there is always a difference. Trading counter trend more often than not will only result in you losing money. ![]() Figuring out which direction you should be trading in is highly important for making money from the forex market. ![]()
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