Alright, let’s look at some other time frames. As discussed in the section dealing with chart time frames, it is important to look at different views to see the same thing (currency pair) from different perspectives. It is amazing how looking at a different time frame can give you clearer insight into what the market could be doing, especially when looking at larger time frames. Here we’ll look at using S.E.X. lines on weekly and monthly charts. On weekly charts I like to have my S.E.X. lines set at 4 (representing a month), 12 (a quarter of a year) and 26 (half a year). The above chart shows EUR/USD (weekly view). As I like to say, the macrocosm is similar to the microcosm. If you didn’t know that this was a weekly chart wouldn’t it resemble all the smaller charts you are familiar with, and wouldn’t it appear that you could use familiar technical analysis trading
strategies (except the pips are larger of course)?
Anyhow, back on topic. The above chart shows a complete cycle from a tight
bunching in late 2001 (near the apex of a humongous triangle formation), then
a series of beautiful uptrends (plenty of profitable opportunities) and then in
mid 2004 it bunched up together again (of course there was a short bunching
in late 2003).
Here is a monthly chart of EUR/USD with S.E.X. lines set at 6 (half a year),
12 (a year) and 24 (two years). I don’t even think that I need to explain
anything here… by now you should understand just by looking at this chart.
What is important to note is that you don’t trade exclusively at these levels
(weekly or monthly). The awesome thing is that by analyzing weekly and
monthly charts makes it relatively easy to predict where the market is likely to
go over the next few weeks. You then take this valuable information back to
smaller time frames, and if your analysis of the big picture matches your
analysis of the smaller picture then you can trade with greater confidence.
As I mentioned just a couple paragraphs earlier, these chart will show the
same trading opportunity formations you have already learned (the
macrocosm reflects the microcosm). Though it looks like something you
could trade (i.e. going “surfing”, trading a triangle or a channel breakout, a
candle formation, or whatever) you don’t engage in such a trade for two
reasons. (1) The time frame is usually huge, but this really isn’t the problem as
long as it keeps going profitable. (2) The real reason is because the required
stop loss would be enormous. The better strategy (as I strongly address in
“Forex Surfing”) is to look for a smaller opportunity (i.e. a surf) in a smaller
time-frame going in the direction of the larger scale forecasted direction. This
way you can enter a trade using a smaller stop loss (thus allowing you more
lots for the trade using proper equity management).
Let me emphasize this point to make sure you’ve gotten it. You look at these
huge scale charts to better see the predominant direction the market is moving
in, then you use this information back in smaller timeframes to set up a
smaller trade that can potentially “sail” for a long time profitably in the
direction of the prevailing larger timeframe trend. If you really grasp this one
point you’ll have a great “secret” that many traders seem to be unaware of…
and this can result in huge improvements to your trading regardless of what
trading strategies you use (either techniques you’ve learned from me or from
other educators).
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