How To Read Your Forex Chart Effectively
In today forex faq, we have a question from one of our fellow traders asking me the below question
I have been learning forex trading for near to 5 months now. However when I open my chart, I do not really know which time frame to choose, what to do and what to look for.
Can you provide me with some training on this area. Your blog has been amazing and helpful to me and thank you in advance for this training.
Do not worry as you are not the only person with this problem. In fact, I have the same problem in the past when I am new to trading. I do not know whether I should look at the 5 minutes chart or the hourly chart. Even when I open them, I do not really know what to look out for except for identifying swings.
Therefore I will like to take this opportunity to share with you something I called Top Down Analysis.
First of all, I will suggest that you open the daily chart, 4 hourly chart, hourly chart and the 15 minutes chart on your platform. Then you start your day by analyzing the daily chart first.
What you should be looking for is strong level of support from those big swing high and low, the pivot points as well as the Fibonacci levels. Once you have established those important levels on the daily chart, you will then identify the trend by using the 200 EMA indicator.
Read this post to learn how to use the 200 EMA for trend identifying
The last thing you should do on the daily chart is to identifying important candlestick patterns like the head and shoulder, double top or double bottom which are signs of reversal.
Once you managed to do the above 3 things on the daily chart, you should now moved down to the 4 hourly chart. Repeat what you have done for this time frame as well. Slowly you will move down to the hourly chart and then the 15 minutes chart.
This technique is what I called the Top Down Analysis Technique, you will have a big picture of the market movement by doing this analysis. Let says that you find that the daily, 4 hourly and hourly chart is in a strong uptrend but the 15 minutes chart is in a downtrend. You can conclude that the downtrend that you are seeing on the 15 minutes chart are merely retracement and not real reversal.
Therefore once you have the opportunity to enter a LONG trade on the 15 minutes chart, you should grab it and then profit from riding the long term trend.
So What Should You Do With Those Levels of Support and Resistance
Those levels can be used as your entry tool and exit tool. For example, you find that the price has hit a major support level of any higher time frame, this is a good chance for you to enter a trade if there is a sign on the 15 minutes chart for you to enter a LONG trade. As for those resistance on the higher time frame, I used it for exit purposes.
I hope that I have answered your question and do feel free to give your comments below.
If you will like me to trade your account for you and help you recoup back your previous losses or help you grow your trading account, you can take a look at my Forex Signal Service below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below