day trading for a living
Any forex trader will tell you, information is key if you want to be successful. However, there is also such a thing as information overload.
So how do you decide what charts to use and which ones to discard?
There are many different ways to trade forex, with long term positions which can be held open for as long as a year to scalping, where each trade is opened and closed within seconds.
Long term trading allows a more relaxed approach as the need to make a profit by the close of business is not present. However, it does require deep pockets in order to avoid natural market fluctuations forcing a margin call. Long term traders hold positions open several months or even possibly years. Whilst they will look at daily charts they also make use of longer term charts.
Short term traders (excluding scalpers) usually keep a trade open from a few hours to a week or two and often utilize hourly time frame analysis. Short term traders have a better chance of making a profit as this is less reliant on one or two big trades. It also provides far more opportunities because of the frequency traders enter and exit the market. However, similar to intraday traders and scalpers, far more attention is needed which makes it unsuitable for traders who prefer to allow their investment to run.
However, regardless of what you choose to trade, it`s important to use multiple time frame analysis to support your position because sticking to just one chart can skew the signals.
As a general rule, in order to spot an overall trend, it`s necessary to zoom out of your trading time-frame and take a look at the bigger picture. Because many trends take longer to develop, a long term chart can paint a very different picture than a short term analysis.
Once you have identified whether the market is moving up or down, you can then zoom back in to your desired timeframe to pinpoint the right entry and exit points. And in some cases, even moving in one time frame closer can help clarify your strategy even further.
For this reason, it`s therefore a good idea to trade with at least three different time frame charts to analyze but any more than this can cloud the picture. Whichever combinations you ultimately decide to use, there should be enough of a difference between the shortest and the longest charts to prevent any single fluctuation showing up on the latter. This would mean you are failing to reap the benefits of using a longer term chart and should zoom out further.
The use of charts not only helps to identify whether you should be going long or short, but can also help to identify the forex signals which can point towards a reversal or a bounce in the market. It`s therefore essential that you experiment to determine which combination of time frame charts work the best for you and provide the clearest indicators of currency movement.
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