8hour and 4 hour. We have already looked at S.E.X. lines on daily, weekly and monthly charts, so now let’s swing our view towards the smaller perspectives. Here we’ll look at 8-Hour, 4-Hour, and 1-Hour charts. As you have already seen when we looked at the weekly & monthly charts, the S.E.X. lines’ periods have to change to accommodate the change of candle periods. Obviously the same holds true when looking at these smaller time frames. Mirroring S.E.X. lines from larger charts is pretty easy to accomplish on smaller charts. You simply multiply the S.E.X. line periods by how many of the smaller candles on the smaller chart equal just one candle on the larger chart.
In the case of looking at an 8-Hour chart compared to looking at a daily chart
you simply multiply the S.E.X. line periods by 3. In case it isn’t obvious to
you (I hope I’m not insulting your intelligence but some people need this
pointed out) there are 3 eight-hour periods in a day (8 x 3 = 24 hours). Thus
to mirror the 5/20/60 S.E.X. lines from your daily chart you simply set them
to be 15/60/180 on your 8-Hour chart.
Here are a few important points to be aware of:
1) The S.E.X. lines won’t be exactly the same as on larger timeframe
charts as the averaging calculations take into account smaller
fluctuations that are visible on the smaller charts that got smoothed out
by the larger timeframe charts (because multiple candles on the smaller
charts get amalgamated into just one candle on the bigger
charts). Generally speaking the effects of this is rather negligible, so
don’t worry about it.
2) When you start using MA lines with large periods (i.e. 180) you need
to be aware of a potential limitation that could affect what you
see. Charts generally present a fixed number of candles (showing only
a slice of time). On some charting packages your MA lines won’t be
accurate on the left side of your charts because there weren’t enough
candles displayed to calculate the average of all the price candles
necessary based on your selected amount of periods for your MA
line. To clarify this let me give you an example. If you put an SMA
line on your chart with a period of 20 then the first 19 candles on the
left of your charts will not have an accurate SMA line due to the fact
that there obviously weren’t 20 candles to the left of each to make an
accurate average based on 20 periods. On charting packages with that
limitation then you need to be aware that using a large MA line (i.e. 180
periods) can mean that most of your chart may not display that line
properly (when, for example, your chart only shows say 300 candles).
The “solution” to this is to use the largest slice of time available to
allow for the most amount candles to be displayed, then just use your
zoom function to get a closer look at the area of interest to you. By
“largest slice of time” I mean you select the longest period of time
available on your charting package based on the candle view you want
to see. For example, my favorite charting package allows me to view
8-Hour candles over the past 5 days all the way to 40 days, with various
increments in between. I always prefer to get the largest time and then
zoom into the area of interest to me (being able to see more information
helps to gain a better perspective of where the market has been to be
better able to anticipate where it can go in the future).
The above mentioned “problem” isn’t an issue with all charting
packages. Many of the better charting service providers have built in
the ability for the charts to be able to query their servers to find out
what the data was from sufficient periods prior to the first candle
displayed on your chart so that the MA line drawn over even the first
candle on your chart will be accurate.
Earlier I mentioned that on the smaller timeframe charts you can “mirror” the
S.E.X. lines used on the larger timeframe charts by simply multiplying the
S.E.X. line period from the larger chart by the difference of equivalence of the
smaller chart time periods. Well, yes, you can simply “mirror” your lines,
however I prefer to use different periods for my S.E.X. lines which I’ll show
you here, but please study some charts using both variables to see the
differences. When we looked at weekly & monthly charts we adjusted to
looking at proportionally larger S.E.X. periods that fit better with those views,
and so when looking at smaller charts it is also good to change the periods to
be more meaningful on these charts.
On 8-Hour charts I like to set my S.E.X. periods to 15, 30 and 60 (which
correlates to a week, 2 weeks, and 1 month – all factors of 2). As I have
mentioned pages ago about periods being arbitrary choices, you can feel free
to play around with the numbers yourself, but I’m sharing the numbers that I
like using.
Take a look at the 8-Hour GBP/USD chart shown below.
First thing to notice is that the “money line” (here 15 is equivalent to the 5 on
the daily charts) becomes more important as an indicator than in the larger
charts. It is still important (as before) as an indicator to watch when it
approaches and crosses the larger S.E.X. period lines, but it now takes on
more importance to watch as the EMA line crosses over the SMA line. As we
have discussed before, on which side the EMA line is and the degree of
separation between the lines is significant. Below I’ll explain an interesting
characteristic of the “green money line” that is better seen on these smaller
charts.
As stated before, most traders are familiar with the concept of MA crossovers,
and it is generally understood that smaller periods are more responsive and
crossover sooner than a combination of larger MA pairs. Well it doesn’t take
a rocket scientist to realize that a smaller period S.E.X. line pair will crossover
sooner than a larger period pair. Watch the short 15 period pair as it’ll quickly
crossover (much faster than even the 30 pair) and it quickly signals either a
slowdown in the market momentum or let’s you quickly spot a reversal
(which is likely to be just a swing).
Look at the chart above. In the downtrend you see there you’ll notice that the
green line crossed over the yellow line even though when you look at the
candles you see what appears to be just a minor hesitation in the market. You
watch these lines because it’ll quickly show you even small retracements
(such as a Fibonacci swing) or, as in the case above, consolidations. How you
use this information is you would tighten your stops, or at least start paying
more attention, if you are in what could be considered a smaller trade. I also
like watching for such signals when I’m employing Fib trading tactics and am
waiting for a limit exit order to happen to see whether it is likely to be
reached. This can also be used for a wide number of other reasons depending
on what trading techniques you are using (i.e. if doing a huge Channel Surf
Zone using it to gage whether it’ll cross the blue line), just use your
imagination to think of ways this can be useful to you.
It is also an important observation that the above-mentioned works best in
situations when the market has been trending for a while, and not after a
relatively strong burst in the market. Take a look at the following chart
(USD/JPY) and you’ll see that it nicely displays the green/yellow cross over
(while the chart appears to be still climbing) in the larger uptrend near the
right side of the chart. Near the middle of the chart where you see a big
bounce you’ll notice that following those huge candles (probably resulting
from some FA) the S.E.X. pair crossed a little bit later, but it was still
relatively easy to read the crossover before the market retraced too far down.
On the following chart of USD/CAD notice how you could have drawn a nice
trendline across the tops, and using Fibonacci methods you could have traded
these. One method of trading Fibs is to just enter at the 62%, but as you
already know I like to jump in on “Surfs” after it has shown to be moving
back in the favorable direction… and looking at the “bunching” then gives me
a nice indicator as to when to be hunting for the right opportunities.
Did you notice that the above charts were of JPY and CAD rather than the
EUR & GBP I’ve been showing before? Well this is to show that these S.E.X.
lines work rather nicely on all currency pairs on the 8-Hour Charts. I’m
pointing this out because in the section where I talked about the daily charts I
mentioned that it appeared to work best on EUR & GBP, but I want to make
sure that you know that that statement doesn’t apply here.
Now what about even smaller charts? A simple way to get more details in
your candle views but to maintain the same (relatively) S.E.X. lines is to just
“mirror” by multiplying your periods by the factor of the smaller chart (as I
explained how to do earlier). To “mirror” your 8-Hour chart S.E.X. lines on a
4-Hour chart you simply double the periods, thus your new lines would
become 30/60/120.
Here is an interesting observation I made one day when I was feeling lazy and
didn’t feel like changing my S.E.X. lines manually. What I did is I had an 8-
Hour chart displaying my lines at 15/30/60 and then I simply changed the
timeframe of my charts to 4-Hour, and the lines remained at 15/30/60. Take a
look at the following two charts (one is 8-Hour over 40 days and the second is
4-Hour also over 40 days with the same line periods).
First of all, the periods no longer conform to the calendar time frames I’ve
reasoned out before (actually they still do, but at a 50% level), but like I said
before, the choice of periods is kind of arbitrary anyways.
What is key to notice is that now you have another perspective to work
with. I won’t elaborate upon explaining much from these charts (as by now
what I would say should be obvious to you) other than to say that obviously
these charts now are better used for short term trades going after smaller pip
targets (or to search for fine tuned entry points, i.e. for a surf on a much larger
scale opportunity).
Look at this one above. This is just a zoomed in look at the last several days
seen on the previous two charts (on the right side of the above charts) viewed
in a 1-Hour time scale. Again, I remained lazy and just left my S.E.X. periods
at 15/30/60. First notice that the gorgeous uptrend seen here now has more
visible details, whereas on the previous charts (particularly the larger ones)
show very little detail, just a big couple of candles. Now you can see that in
that uptrend there were (surfable!) swings that you couldn’t see before. More
importantly for our discussions of S.E.X. lines notice how you can see
awesome bunching, separations, and endings (like elaborated in the section
dealing with daily charts). Everything previously mentioned can be applied in
this scale for trading purposes, however your trades are obviously going to be
for much smaller pips (hey, that’s ok because you can trade more lots thus
getting comparable profits… remember, small scale trades can be equally
lucrative to big scale trades).
Let’s take it to the extreme… here is a 5-minute chart showing the peak
visible from the previous chart. Again I’ve use the “lazy” method, having my
S.E.X. lines at 15/30/60. Notice the “micro trend” going long and short on
both sides of the peak. Also notice that you have further visual clarity of
candle details. This scale is a VERY useful tool to assist you with the
techniques learned in “Forex Surfing”.
The following chart is just a zoom in on the whole up-trend that was visible in
the above 8 & 4-Hour charts, seen here on the 5-minute chart.
Just looking at that chart don’t you feel like grabbing your boogie board &
goin’ surfing? See how S.E.X. lines can help you to surf better yet?
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