Forex Technical analysis

Technical analysis at various time intervals

Technical Analysis at various time intervals is a simple forex trading strategy consisting of an analysis of the selected currency pairs in different periods shown in the chart. The advantage of this strategy is the fact that when considering the behavior of a given currency at ever shorter intervals, the investor obtains almost instantaneous picture of the movements made by a certain currency pair, giving him the opportunity to make decisions based on sound analysis and information, when buying or selling a currency pair.

Generally, one selects three time periods depending on the trader’s investment strategy. Forex market participant assuming longer term trades has weekly, daily and four-hour charts at his disposal. Short-term forex trader uses four and one-hour, or even 15 minutes graphs. It is crucial to use an graph with the longest available time horizon to determine the “big picture” and the direction of the transaction. Then proceed to charts covering the shorter interval in order to “tune” the occupation positions in a given direction.

Perhaps some of forex traders know the phrase “trends exist within trends”. For example, on the one day chart, we can observe the upward trend, in the 4-hour chart it may be declining, while on the 1-hour stay flat – and all this for the same currency pair.

In this scenario, the main trend is based on the daily chart, which shows an upward trend within which the four-hour range however, there are downwards symptoms. There is a high probability that it will end at some point, and 4-hour chart coincides with the daily one. In the same way, in the range of 4 hours there appears a new trend lasting only for 1 hour. As this 1-hourly trend is leveling to match overlapping four-hour trend, and 4-hourly chart begins to match the daily one, there is a point – the moment favorable for the transaction.

To put it briefly, we are interested in entering into a transaction at the point where the shortest time frames in our system have reached breaking levels (breaking is a move in the opposite direction to the trend which has been observed on the daily chart) and start a new movement in the direction of the daily trend. This is a signal to take planned positions. This type of analysis can be compared to the tumblers in the lock, which, one after another line up in the right formation.

Using several time intervals, the investor can gain insight into the behavior of the selected currency pairs in three different time periods and use this information in order to take a single currency position at the time in which the analysis of the graph indicates the highest probability of success. Let’s take a look at the sample graph of AUD/USD currency pair.

Technical analysis at various time intervals - AUDUSD pair

In the above daily chart there is noticeable upward trend for the selected pair. We know that, relying only on this observation, that we seek only the possibility of buying. As the graph is in the upper phase of upward movement, this is not a good time to invest in this currency pair, since the level of break can only be approached. Let’s see if the chart below will shed some more light on this transaction.

Technical analysis at various time intervals - AUDUSD pair 2

On this 4-hour chart we see that the pair chosen by us continue upwards (higher growth and lower declines), and probably the support points are located on the red line graph. If the support point remains unchanged, the player can at this point take a long position, as this pair on the daily chart can then enter a turn towards increase. (If the candle closes below the support, you have to wait for the formation of a further decline – the bottom point before taking a long position.) A slightly more conservative player will wait with involvement of a long position, until the currency pair breaks through a resistance point on the black line.

In the context of a different time frames, analysis is crucial at this point of the chart below, which allows for a more detailed overview of the data for volume on currency positions before deciding to invest. Let’s get to 1-hourly chart for the chosen currency pair.

Technical analysis at various time intervals - AUDUSD pair 3

Looking at the one hour graph, we see that the fulcrum (red) has been repeatedly tested and may indicate the beginning of a new upward movement. If the price movement closes below the fulcrum, as is the case with a 4-hourly chart, we need to wait with taking of long position until it forms a new point of support. To gain greater certainty, the investor may be forced to refrain from the transaction until the resistance point is broken and the candle closes above the fulcrum – the black line. The closing price above this level will mean that the buyers take control again in this time period.

We hope that based on the analysis presented above of three charts for a pair AUD/USD, using three different time periods, we were able to show how an investor can use them to analyze the different time periods (Multiple Time Frame Analysis) in order to obtain a broader picture of the two currencies and to make sure of their performance, and obtaining its optimum price movement at which one should take a position in accordance with the current trend.

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