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Trading The Appropriate Time Frame: Identifying Market Turns Quicker

One of the few things professional traders are slow at is changing their trading plan. While most don't need to tweak their trigger, or their trade management, there comes a time, whether because of market trends speeding up, or slowing down, that we need to adjust our time horizon. Over the course of the last few months we saw the speed of many currencies slowing down, which meant less follow through of impulse moves and more sideways price movement. This meant less trading opportunities because while we were still exiting trend trades successfully, we were not able to trade the opposite direction until the higher time frame patterns confirmed that new direction. This meant missing the first half of many moves. And then there is always the conflict between taking a lower time frame shift/trade, when it is counter to the intermediate-term and long-term patterns.

In trending currency market's such as we saw from 2002 thru 2012 it was not uncommon for the short, intermediate, and long-term patterns to be aligned the majority of time - particularly the intermediate and long-term patterns. In late 2012 and 2013 however market direction on the various time frames has tended to be counter-trend to each other more times than not. And just when they do all align, a short-term price shift can put them right back into counter-trend mode.

Our solution at Trading University is simple. Give our students/traders simple, easy to follow instructions as to which time frames to focus on to determine whether they should be buying or selling on any particular day or week:

Day Trade: Take signals in the same direction as the majority of the 10-day, 20-day, & 50-day patterns

Swing Trade: Take signals in the same direction as the majority of the 5 tradable patterns (10, 20, 50-day, Secondary, & Primary)

Position Trade: Take Signals in the Same Direction as the majority of the 20, 50-day, Secondary, Primary, & Grand Patterns

By breaking it down to which time frame to trade based on the alignment of the appropriate pattern we have simplified the decision making process, giving the trader the freedom to trade which ever time frame suits both the current market environment and their own schedule. This way we can take advantage of counter-trending markets where short-term direction and pattern are often more influential; which is the opposite of trending markets where long-term direction and pattern tend to dominate. The guidelines also respect the fractal nature of markets which have the freedom to exhibit different patterns on different time frames. This can be confusing for untrained traders who don't understand how the same trading method could be long on a long-term chart and simultaneously short on a short-term chart. It is occurrences and circumstances like this which should be providing us with more, not less definition. While we now have the freedom to consider day trade set-ups and signals based on those 3 lower time frame patterns rather than the 5 tradable patterns, nothing has changed for us regarding our trade signals and trade management.

To see Jay Norris highlight trade set-ups and signals in live markets go to Live Market Analysis. Jay is the best selling author of The Secret to Trading: Risk Tolerance Threshold Theory.

Trading involves risk of loss and is not suitable for all investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.