Trading with the overall trend means that we just take trades in the direction of the trend based on a higher time. This time frame shouldn’t be too much higher than the time frame you want to enter trades on (in our case the 4 hour charts) because then the two frames just aren’t related enough. In the same way, we don’t want to look at time frames too close to our trading chart either, because the data will be too similar and not useful in our trading decisions.
We use Daily Charts to determine Overall Trend
Here are some examples of good trade and trend time frame companions:
- tick chart and range chart
- range chart and 5 minute chart
- 3 or 5 minute chart and 15 minute chart
- 15 minute chart and 2 or 4 hour chart
- 4 hour chart and daily chart
- daily chart and weekly chart
A related saying is that “you can’t see the forest from the tree.” It’s the same with trading. It’s hard to determine the overall trend from the chart you are entering your trades on. It’s better to zoom out on your chart, or simply look at another chart in a higher time frame, to determine the overall trend of the market you are trading.
You can determine the trend in a variety of ways:
- Look for a series of higher highs and higher lows to determine and uptrend, and lower lows and lower highs to determine a downtrend
- Use a custom indicator
- Use a series of standard indicators, like EMA (exponential moving average) crossovers, which come built in to most trading platforms
- Ask a kid younger than 10 years old (while adults tend to over-analyze trend direction, kids seem to always know right away which direction a trend is in whether it be up, down or sideays.)
