How do you actually choose the right Forex Technical Analysis Timeframe?
Or, better yet, is there’re such a thing as “the right forex technical analysis timeframe?”
Well, this is another very in demand topic, and Francis Hunt spills the beans on the subject:
“Yes, timeframes are good question and something that it’s in terms of my strategy. I’ve come and found my own truths, so I’ll share that… As I trade trend, with the Trend, I don’t look to pick reversals, because often reversals have lowest success rate and don’t turn out to be reversals. In other words, going back to that Isaac Newton and Einstein type philosophies – things continue to move generally, and they are moving for a reason.
So, on the basis of a trend continues pattern, or continuation, I have a trend-time view and then have a pattern-view. Where I’m looking at the setup – the squeezing of the Volatility; it’s stopped going up for a while, it’s resting. And then I have a trigger-timeframe which will be a time frame where you actually looking for the specifics of the Market to get your unique high 3 point, and when the breakout is going to happen. So, that is very focused on timing. Which direction the river is flowing? Where is South, you know, – the downstream? Get that right, that’s your Macro timeframe.
Typically, the best times the patterns are taking – on the larger timeframes. They are more consistent, broadly you are less likely to be flicked out, particularly if you are in Forex. Variety of other underlying markets can be a little bit choppy at times. I would say, you want a trend-timeframe, which is may be a Daily chart, can even be Weekly, or Monthly to H4-(the four hours). Your pattern-timeframe, is where you’re looking specifically at the setup and identifying the aspects of it…and I’m talking about the symmetrical triangle; your three highs and three lows, the pinch, that would be one quarter of their half.
So, if you are on Daily, your trend-timeframe, I would be on my pattern-view, the four-hour. And then when I’m looking at that third high and third low and the move that takes it through the high 3, that reasserts the bull-trend. That would be my trigger and timing timeframe. I want to really pick that third high and get that stop neatly nailed.
And the point that I entered with the pending order, note also, that is a pending order. In other words, market must take you in. This actually eliminates a lot of bad calls, because if it breaks down and it is a reversal instead – you don’t get taken in. Most people are getting in market orders, they say: “Oh, I must be in, the markets are moving.” And they jump, they are momentum chasers…by a default. Because, you want to be excited, it’s going up, you want to be a part of it – you chase the train.
A pending order is more about price level falling, than a specific moment in time that you want to be in the market. So, that trigger timeframe would be a quarter of four-hour (H4). You would have Daily – trend. You would have four-hour – pattern, and you would have one-hour (H1) for capturing that final, third high and third low. Which represents the breakout and the stop-loss placement. Bang!…those are my three timeframes. So, I’m actually looking at three. The first one, once you’ve got that right – it’s nailed, you can set aside. Then you concentrate on the other two.
– Hmm…yeah, that is intensive…so, how many markets you follow?
It’s driven by finding the specific setup, so, I tend to be interested, once there is a chart that has had a strong Trend, that is in continuation pattern and has already given me my first pull back and the second bounce. And the second pullback that is not as low. It is already given me two clear impulses and it’s tightening. Then I start to say: “Ok, this is looking interesting.” That becomes just a watch list candidate and depending on how it’s progressing, as long as, it continues to comply, we become more and more interested in it. And as we start getting to the third high and the third low we’re focusing on the trigger time-frame. “So, how many markets?” – I don’t have a number, I don’t say – 10. Anything that I can find, and I have number of scanning tools where I can find a liquid market that is giving me circumstances, is potentially interesting.
– Ok, lets talk about predicting price direction and its importance in Your trading style.
So, direction…As I’ve probably eluded to; we are continuation orientated, broadly speaking. We’re buying the Trend that is already apparent. If it shows us that is ready to reassert again to the upside, so it has to be self-confirmatory as well, by virtue of its continuation. I keep my direction very, very simple. We believe, the original direction is correct until such times that is proven to be incorrect.
I apply, what I call, a summative theory; we continue to keep on believing – you’re moving up, as long as, you keep showing that that’s what you’ve been doing.
In other words, once again, referring it almost to that object in space that is moving…it will continue to move, until such times as some new element enters into the market, in space, that pushes it in another direction. And as you’ve noticed, with our solar system, and all of this things, we are continuing to move for a long, long time.
And only when we get hammered by one huge star, or asteroid are we going to seize to moving that way. It’s been highly predictable for many, many years and if we get Astronomical, you can say, it’ll probably be the case of our entire lifetime and many people’s lifetime before and after us.
For me, that makes logical sense for a Trend. Market is re-valuing, say in Equity, or Commodity, or even in Fx pair. What happens is that, we are not a fruit-fly. You don’t go from one point, an event, and suddenly all the information becomes Universally available to all the people, and that fruit-fly jumps from here to there.
The way the market responds, is you have to cope with peoples expectations and re-rating of value and it takes a while, over time, for people to see someone in new light, or re-value the company in a new light. This is, what is the birth sign of Equities. After doing it quite a lot, fairly briskly for awhile, it will pause in that process. In the same way as you climb the steps; you go up – you flatline, you go up – you flatline. I’m exploiting that.
– This is like, common sense…
– To me, it’s feels like a logician’s way.
– When You talk about it like that, it’s not better than very basics. Isn’t it?
Yes, but you’ll be amazed how many people, when teaching, that are always trying to sell something that is going up, and always trying to by something that is making new lows. I’ve never understood – why? It’s almost like saying: “Can I swim upstream to the top of the mountain?” And I’d say: “Well, go down, to the beach, see who gets there first?”
– What’s most important part of your strategy during a regular day, you know?
– What’s Your number one thing?
I think, Analysis – not the actual trading. The amount of work and drawing you do on your charts, pre-actually taking in, is what gives you the confidence. I’ve always found, I’m most confident on a trade, when I really opened the chart up. Historically, I’ve looked to see how it’s performed, how is it continued before, drawn the patterns, projected the targets –
where they were made, thrown all my key levels of significance through the chart.
Seeing: it’s come back, visited, supported, moved back up. Really got inside the price behavior that I feel. I understand this animal, you know. You wouldn’t start committing surgery on a being that you’ve never studied before. Why would you start trading something that you have not, properly, got under the skin of?
– What are some of the advantages of following a tested strategy, aside from, a better opportunity to win?
So…tested strategies, and I’m assuming you talk about something that is systemic, where you can actually run almost ‘black-box’(algorithm), and you generate notional trades. In that instance, I’d feel the biggest advantage of a tested strategy is actually, the process of defying the strategy in a first place. Because, too many people when I’m speaking, and this is once again, the value of having taught traders.
They say: “Here all my rules…” And then, when I watch how they implement them, they actually say: “Well, I did not do that one, because of that, and I didn’t do this one…” So, I said: “Where is that as part of your rules, though?” You actually, discretionally, bending the bernicial rules that you wrote down. Which, you not actually trading your system in terms of how you’ve defined it, or you actually adding a new level of rules that you have not yet incorporated in your rules.
So, one, or two is going to happen; you really going to stop messing with what you’ve originally wrote down and trade what you’ve defined, or that what you think is important criteria – define that criteria and integrate into your system. What you actually find, is you start being forced to make decisions about what you really want. You can’t get in life what you want until you define it and could write it down.
The same way in Trading, you have to say: “I’m going to let some of those trading patterns go. I quite like them, but sometimes they really sting you. They go the wrong way and when they do that, it could be good, but it could be bad. Let’s just focus on the ones that give me the results that I always need.” And you’ve been forced to eliminate, and to define.
That process of defining the system is most valuable part for me. The testing, then, gives you the outcomes of that work and tells you if you basing your thinking on a failed fallacy, or not. If you can’t make over a long run reasonable return on testing, you will never make it in reality on that. The testing is a clear point of where your idea is “put to the sword,” if not justifiable. And then, you are living in a false paradise, so you must come up with another system, but at least it gives you closure. You can let it go.” – Francis Hunt
What Forex Technical Analysis Timeframe do you use in your trading?
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