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Should You Use Multiple Timeframes When Trading Forex?

May 27, 2008
Many people new to forex trading start by just trading one single timeframe, whether it's 5 minute charts, 4 hour charts, or daily charts, for example. However is this really the best way to make money from forex trading?

Well in my opinion you're much better off using two or three different timeframes to assist you with your trading decisions. This way you're always fully aware of the longer term trend, whereas if you're trading using just one timeframe, then you're oblivious to the wider picture.

For example, if you notice that a particular currency pair is trending downwards on both the 4 hour and 1 hour charts, then you don't really want to be taking long positions on the 15 minute charts.

Ideally you always want to trading in the same direction as the overall longer term trend. So even if you're a scalper and trading the 1 minute charts, it's still a good idea to consult the 5 minute and even the 15 minute chart as well for an indication of the wider trend.

I personally like to trade the 4 hour charts using EMA crossovers, but I always make sure I consult the daily chart before taking a position. So if the daily trend is bullish, I will make sure I only take long positions and vice versa. This ensures that I'm always trading with the trend and not against it.

If you always trade with the overall trend, then you are always ensuring that the odds are in your favour, and so your entry points do not necessarily have to be as precise as the longer term trend will often come to your rescue.

For instance if you like to trade the 15 minute charts, you could use the 1 and 4 hour charts as well to indicate the overall trend. If the trend is upwards on both the 1 and 4 hour charts, then you would want to be looking for oversold positions on the 15 minute chart so you could take a long position because the odds are clearly in your favour that you will see a continued upwards move.

Similarly you could use daily, weekly and monthly charts in the same way if you are a long term forex trader. The important point is that whatever system you use, it's always a good idea to use multiple timeframes. This way you will ensure that you are always trading with the trend and not against it, which is one of the golden rules of profitable forex trading.
About the Author
Click here to read James Woolley's review of ZuluTrade and to learn all the latest tips and strategies related to forex currency trading.
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