Lesson #59 Choosing to Go Long or Go Short

You will notice that the markets are simultaneously moving in different directions especially if you are studying a currency pair in different time frames.

For example, if you are looking at a weekly chart, the moving average will show rising patterns. This is a signal for you to buy. However, on a daily chart, the average is falling and this means a sell signal.

Similarly, if you look on an hourly chart, the market could be rallying which means you have to go long. But if you look at the 10 minute chart, the market is sinking which tells you to go short.

This is quite confusing isn’t it?

It is very important to understand that support and resistance levels become very critical on the larger timeframes. Most traders made a lot of money because they often use multiple timeframes. This will allow you stay afloat in the market because you can spot your exact position relative to the bigger picture.

Novice traders have a habit to look only at a single timeframe. They take hold of a timeframe, apply indicators and didn’t bother to look at other timeframes. If you cannot study the big picture, you will get burned as new trends could come from another timeframe.

You need to learn how to zoom-in your market view but always learn how to view the market on a bigger picture. This allows you to have a broader look of the market.

You need to start at your familiar timeframe then shift your view to a higher one. Based on this, you can make strategic decisions.

You can go back to your starting timeframe and make tactical decisions. This dictates the decision to enter or exit the market and to set stop and profit targets. You will have definite edge over one-dimensional traders if you trade using multidimensional time.

There is a limit though on how many timeframes can you use. You do not want the charts to populate your screen. You can use two timeframes but not more than three. You can be stricken by paralysis analysis as more charts are added.

You can utilize three timeframes. The longest could serve as your main trend. The mid-timeframe could be used for spotting medium trends. The shortest timeframe can be used to determine short trends.

For this purpose, you can select any 3 timeframes but be sure that they have sufficient differences to spot significant movement in the market. You can use these:

• 1-minute, 5-minute, and 30-minute

• 5-minute, 30-minute, and 4-hour

• 15-minute, 1-hour, and 4-hour

• 1-hour, 4-hour, and daily

• 4-hour, daily, and weekly and so on.

The timeframes should have significant differences so that the shorter timeframe can move without noticeable effect on longer timeframes. It would be useless to use timeframes that are too close because you will not be able to identify differences.