[FX Lesson] What should you do if the long-term chart is bearish but the short-term chart is bullish?
The daily chart is bearish, the 1-hour chart is bullish.
Which one should you trust?
How to read a chart when the direction differs by time frame
Hello, this is Leo.
When you check charts across multiple time frames, have you ever seen situations like this?
Looking at the daily, you want to sell. But the 1-hour shows a rise, so it may seem better to buy.
When time frames point in different directions, this kind of situation tends to occur.
This time, we’ll explain how to view the market when the higher and lower time frames differ in direction.
Different directions by time frame is normal
First, it’s important to know that not all time frames always point in the same direction.
Even while the daily is in a downtrend, it won’t move straight down endlessly. During a decline, there are temporary “pullbacks” where the price rises.
If you view these pullbacks on the 1-hour chart, you may see an uptrend.
inside it, on the 1-hour chart, an uptrend can occur
This isn’t a contradiction. It’s just that the magnitude of price movement you’re looking at is different.
Higher and lower time frames have different roles
When I look at multiple time frames, I separate their roles.
Higher time frame decides the direction you want to target
If the daily and 4-hour are bearish and the 1-hour is bullish, the overall market trend is downward. In this case, the goal is typically to sell.
However, just because the higher time frame is bearish doesn’t mean you should sell immediately.
Lower time frame decides the timing of the entry
If the 1-hour is bullish, the short-term rise is still occurring. If you sell here, you would be entering against the rising market.
Therefore, wait until the 1-hour rise stops and it turns to a drop.
and wait for the entry timing on the lower time frame
“Just because the daily is selling isn’t enough”
It is important to confirm the direction of the higher time frame. However,“If the daily is bearish, sell right away”is not a sufficient basis for an entry.
Even if the daily shows a small pullback, the 1-hour may reflect a large rise.
If you sell while that rise is still continuing, you may endure a longer drawdown or see the price drop after you’re stopped out.
Wait until the 1-hour buy breaks down
One criterion to judge the end of the lower-time-frame rise is the swing low in Dow Theory.
In an uptrend, price moves by forming higher highs and higher lows. If the swing low supporting this rise breaks to the downside, the previously rising momentum may have toppled.
For example, recently EUR/USD showed daily and 4-hour sells, with a 1-hour buy continuing.
In this state, you cannot blindly sell just by looking at the daily and 4-hour directions.
If the swing low on the 1-hour breaks, the 1-hour buy collapses and the flow aligns with the higher-time-frame sell direction.
Front-running vs confirmation after reversal are different in meaning
There are two main ways to enter a sell position.
There isn’t a single right answer. However, you should distinguish in your mind whether you enter before a reversal or after reversal confirmation.
The biggest pitfall is changing your view by time frame
You want to sell when looking at the daily, want to buy when looking at the 1-hour, and again want to sell when the 15-minute drops.
If you repeat this, you’ll be swayed by every small move in the market.
What you need is a clear plan for which time frame to view and for what purpose.
Is it necessary to wait for all directions to align?
It isn’t necessary for every time frame to be perfectly aligned in the same direction. Waiting for all to align may mean the price has already moved significantly.
What matters is toclearly define which time frames you’re following and for what purpose you’re timingto monitor.
If you’re targeting the daily and 4-hour downmoves, confirm the process by which the 1-hour buy weakens.
Conversely, if you’re briefly aiming for the 1-hour rise, consider it as buying up to a point where daily and 4-hour pullbacks would be likely to occur.
Summary
Daily is bearish, 1-hour is bullish. Even if time frames point in different directions, one being wrong isn’t necessarily the case.
- Decide the direction you want to target on the higher time frame
- Check pullbacks/pullback positions
- Wait for the lower time frame to change its flow
- Differentiate between front-running before reversal and reversal-confirmed entries
Just because the higher time frame is bearish doesn’t mean you have to sell immediately.
When the 1-hour buy breaks down and the flow aligns with the higher time frame direction, it becomes a favorable moment to consider selling.
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