This is a guest post by Ahmad Hassam
Using the higher timeframe to confirm a trading signal on a lower timeframe is a skill that can be highly rewarding for a trader. Many traders take a trade that is coordinated on the lower timeframe but not the higher timeframe which often gives them bad trades and a waste of time and energy.
Suppose, you find the trend on the intraday chart and the trend on the daily chart in the same direction, it is like having the wind at your back.If you can master the art of identifying currency pairs that have the intraday trends in the same direction as the daily and the weekly trends, you can reap immense rewards.
If you are trading the hourly chart, look for confirmation on the 4 hourly chart. If you are trading the 15 minutes chart, look for confirmation on the 60 minutes chart. And if you find a good signal on the daily chart, look for confirmation on the weekly chart.
So, as a rule of thumb, first look for a trade setup on the intermediate term timeframe. If you find a potential trend reversal in the making, look for confirmation on the longer timeframe. The longer term timeframe should also be showing signs of a potential trend reversal like a stochastic cross or a doji. Now, shift to a shorter timeframe for a signal in the same direction.
Now, when you view charts, always use the proper amount of time in order to make correct trading decisions. The preferred time for each chart should be:
Monthly Charts: 7 years,
Weekly Charts: 2.5 years,
Daily Charts: 8 months,
4 Hour Charts: 1.5 months,
1 Hour Charts: 10 days,
15 Minutes Charts: 28 hours,
5 Minute Charts: 8 hours.
Coordinating Timeframes means seeing trade setups on the higher timeframe and then waiting for the trading signal in the same direction on the lower timeframe. So, once the signal comes on the lower timeframe, you should again check the higher timeframe to confirm that that initial indications that warranted the trading signal are still in place.
Downside to this higher timeframe trend confirmation occurs in a counter trending market, a sideways market or a trend reversal. If you use the higher timeframes to confirm a reversal, you will miss it, as it happens on the lower timeframes first. That is why it is very important for you to understand the difference between trend trading and counter trend trading.
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