I strongly believe that all markets move in cycles. There is one cycles that is the largest, and within that largest cycle there are an tens of smaller cycles. To make things simple, let’s say that the largest cycle is a yearly chart, and the smallest is a one minute chart.

The one minute chart has trends within the 5 minute charts which has trends withing the 10 minute chart and so on and so forth. The result being that there are hundreds of tiny trends in a daily or weekly trend.

Every trader and trading strategy has a preference for a certain type of timeframe, whether it be someone who scalps tens of times in a day off the one minute chart or whether it be an investor who does 3 trades a year off the daily and weekly charts.

Maybe you have an automated system to trade on that you stick to religiously and a system that is very profitable for you. I like to trade with technical analysis, and mostly the 4 hour and daily charts. Every now and then the price action on these 4 hour and daily charts will be in a position where I am unable to make a clear decision about where the price will be heading over the next days or weeks. Of course, in this situation it is always wise to stay out of trades. If you are not certain, either use a tight stop loss to limit your rsik or not trade at all. It is not the end of the world if you do not trade for a few days.

However, I love looking at charts and making analysis to try to determine where the price will head in the near future. When a chart on a certain time-frame does not indicate a clear picture, I always move up a time frame so see if it will show a better picture. For instance, if a daily chart does not give a clear picture, I will get a weekly chart or even a monthly chart.

Trend lines that go further back will often reveal patterns on the larger trend that the smaller trends will complete, but the smaller time-frame charts can sometimes not show these larger patterns. Getting a view of these larger patterns can allow you to position yourself for a longer term trade or can prepare you to take positions when the price does indeed complete the larger pattern that you expect it to.

When In Doubt Look At The Larger Trend

I wrote in another post why I don’t trade against the larger trend. The reason for this being that if your call of trading against the larger trend is incorrect the trade can really go against you (and hopefully you use a stop and will get stopped out for an acceptable loss). However, if you trade in the same direction as the larger trend, you can still be wrong in your timing, but your direction will be right and under the right circumstances you can add to your trade to be able to see it head back in the direction of the larger trend and make you lots of money.

Even though you may trade much smaller time-frames, I still think that it is a good idea to look at the larger time-frame charts and be aware of the larger trends. Then use that larger trend as guidance for the direction of your shorter term trades.