Welcome to another edition of the bulls vs the bears. This week we are going to ask a fundamental question. And it goes like this: “Should I Use One and Four Hour Chart Time Frames To Confirm Daily Price Signals?” I say a resounding YES. Why? Because that’s where a lot of the price action is. However, and there is a however there. You have to know when to use them and how to use them. Failure to do so could result in you paying dearly with your trading account. So I’m going to show you how. But before I do, If you’re not sure how to trade time frames nor confirm price signals I strongly suggest you consult Looking At The Big Picture Using Multiple Time Frame Analysis and Price Confirmation Signals:Weeding The Chaff From The Good.
You can use the one hour and four hour time frames to confirm price signals. You also need to understand that the one hour and four hour time frames act as points of confluence where they place extra importance on a trade. With that in mind, depending on the strength of the price signal you can decide whether to enter the trade or not.
Now let’s see ways of confirming daily signals using the one and four hour time frames.
Get A Second Crack At Missed Trade Signals
You can use the 1 hour and four hour time frames to get a second crack at missed trades signals. Now what do I mean by a second crack at missed trade signals? All I’m saying is you get a second chance at making an entry on a juicy price signal you may have missed out on. I’m sure most of you hate missing out on hot price signals popping up on your price action charts. I have been burnt several times looking elsewhere while the signals were cooking on the price action charts.
But the good news is you do get a second chance in the forex world. You can make a re-entry to search for the price signal that escaped you earlier on. Let’s look at an illustration of a pin bar buy signal below.
Now right here is an illustration of a two pin bar buy signal situation in the one hour time frame.. Now the pin bars labelled as pin long suggest clear signals on the uptrend. They are there for the taking. If you are smart as I think you are You’d most certainly grab them while they’re still hot. You snooze on this one you’d have to make a reentry which we are going to look at soon.
Speaking of reentry, lets look at the GBP/USD reentry on the 4 hour chart
Now first let’s look at the downtrend at the first support. The first candlestick sitting on the first support serves as the first fresh signal. In case you missed that one, you can try the next signal later on labelled ” Entry.” So as you can see, just as in life, you also get a second crack in the forex world. Just make sure you don’t sleep at the wheel again.
Use Intraday Charts to Confirm Daily Signals
You can also use Intraday charts to confirm daily signals. You know sometimes you see a price signal and you go “Naaah! I’m not sure about this one. Let me wait this one out and see.” Again, it happens to the best of us. There is nothing wrong with waiting.The last thing you want is to get your fingers burnt entering on the wrong signal.
This is where intraday charts comes to the rescue. The intraday charts helps clear the clouds for you and makes things crystal clear. Now lets take a close look at the price action of the USD/CAD pair.
We see two positive bearish signals along the key support level. Using the 4 hour time frame, these two signals should help clear the confusion you had about the initial signal that you weren’t sure about
Intraday charts also help in the area of what I call unclear confluence. And by that I mean confluence that is not too obvious. Sometimes you see a daily signal whose confluence or key level is a bit uncertain. There is no clarity about it. So you say to yourself ” I need a clear signal to act as the confluence so I can decide whether to take advantage of the signal or take a range check.” Let’s take a look at the price action of the EUR/USD pair using the 4hr time frame.
As you can see the confluence of these price signals for these bullish pin bars are as clear as night and day. A one hour time frame would most certainly have helped defined this setup and made the coast clear enough for you to make your grand entry. In so doing you can also put a tighter stop loss to protect your trading account from going up in smoke
Use 1 hr/4hr Time Frames To Change Risk Reward/Position Size
You can also use the 1 hr/4 hr time frames to manipulate risk/reward position size. Now for all of you regularly use the daily chart, you know very well about the huge stop losses you need to employ to protect our precious trading positions. So with the 1 hr/4 hr daily chart,you can employ a tighter stop loss and tweak your trading position size simultaneously.
I have to warn you though that it’s not going to be this rosy on every trade on intraday charts. Sometimes the risk management is no different from that of the daily charts. However, if things really pan out, it’s possible to double or triple the potential reward using intraday signals. Let’s take a look at a clear pin bar signal using the EUR/USD pair.
Here we see a clear manifestation of a pin bar signal. It’s basically saying”Here I am. Use me!” Now if you enter a stop placement around a lower low, you’d most certainly make a huge profit on this trade. Alright, let’s take a look at a 4 hr set up in this risk/reward scenario.
Here is a classic illustration of a 4 hr pin bar setup on an uptrend.As you can see the price signals are all over the place. And the sky is the limit as far as rolling in the profits are concerned. Not to mention the fact that this reduces your stop loss by at least half. This will definitely do your peace of mind a whole lot of good. Isn’t that what we all want?
Let’s look at another example using the GBP/JPY pair.
Here you see bullish pin bars being manifested here. That’s a free 90+ pips for you to take. However, down in the far left corner, you’d be nuts to put in a trade in this situation. There is too much indecision in that corner. If you want to lose all your money trading in that corner, BE MY GUEST.
That’s a wrap for ”Should I Use One and Four Hour Chart Time Frames To Confirm Daily Price Signals” A syou can see, one and four hour chart time frames can be very profitable if you know what you’re doing. Even more important you should know how to use the one hour/four hour time frames and when to use them. Using a kamikaze approach will most certainly cause you your account a lot of pain.
Next time we’ll take a closer look calculating risk/reward ratio without blowing your bank account. Till then take care.
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