Tuesday, December 05, 2006
Timeframes
Timeframes
Today I was reminded of a very important part of trading through trading of my own. There is more than just one timeframe. Just because your trade is based what you see on a daily chart doesn’t mean that you should ignore the 3 hour chart just because “it doesn’t apply.”
I based this EURCAD (Euro to the Canadian Dollar) trade on mostly the 3 hour chart. I sold the euro based on the RSI combined with the moving averages, however this is not important. The important thing is that a moving average on the 15 minute chart and the 1 hour chart eventually affected my trade, resulting in an early close until the pair convinced me again that I had made a good trade.
I am, professionally at least, a trader. Its just what I do, hopefully many of you are also doing well with your trading. You will find soon that in trading, you never have good hours. This is another lesson for another day but simply, I did not wake up and feel remotely conscious enough to even touch my computer yet alone my forex accounts.
When I logged in I found my pair to be roughly 55 pips in profit, turning a 3-4% return on my total portfolio. I began to scan the charts to see where I should exit, if needed, and to see if there was any upcoming turbulence in sight. Sure enough, problem!
There is a nasty moving average sitting below the pair on a 1 hour chart. It is a 50 hour simple moving average floating just below the current price. These key, and round, numbered moving averages usually mean extreme support. This is not a good thing when you have bet the pair will drop. Going up is the last thing you want.
I immediately close out and lock in my 55 pips profit which I was happy with. I’ve told myself that I will re-enter this trade when it falls through this crucial support. The pair also encountered resistance from the 15 minute chart and a 200 period simple moving average. The longer the timeframe, the stronger the line is usually.
Here are some screen shots from the troubling averages:
Below is the one hour chart. You can see a strong support moving average, not a good thing in my case. Ignore the first blue triangle indicating a buy, I was merely testing the interest on the pair.
The 15 minute chart isn’t much better. The 200 period moving average on the 15 minute chart is giving crazy support. Again, ignore the first blue triangle indicating a buy, I was merely testing the interest on the pair.
