Disclaimer: The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any specific security or investment product. You should never invest money that you cannot afford to lose. Before trading using complex financial products, please ensure to understand the risks involved. Past performance is no guarantee of future results.
In today’s price action post, we will cover time frames, the importance of confluence between time frames, and candle patterns (covered in chapter 5). There will be a brief study about trading entries and we will share a candle pattern script (in chapter 5).
If you miss the other chapters you can follow the link:
3rd: Plot Support and Resistances
In this chapter, we’ll focus on multiple time frames and the different opportunities markets present us by using higher time frames in combination with lower time frames.
Higher time frames such as monthly and weekly candles provide an easier way of finding more reliable support and resistance areas. A good way of removing the noise of the market can be simply zooming out.
Accurate dynamic support and resistance zones on monthly and weekly time frames are areas that stick out and are very obvious to spot. Higher time frames provide us with a clearer image of the market state by filtering small and mostly, irrelevant price movements. Last but not least, using these higher time frames we are filtering out in some cases, short term emotional market moves.
As mentioned in the previous article, easily visible levels usually hold more weight. The logic is that the larger the number of traders who find these levels, the stronger the reaction and volume when price approaches them.
Different Time Frames
When we are using lower time frames such as 4 hours, 1 hour, or even below, there are support and resistance zones everywhere! One of the major downsides of lower time frames is the abundance of apparent support and resistance zones, which are often market noise. Contrarily, on higher time frames there is way less noise and the support and resistance areas become more obvious to spot. Spotting these areas on the higher time frames increases the probability of finding a true support and resistance zone. Finding a true support and resistance zone opens opportunity, and is the first step to find a trade entry on a price action-based strategy. The trading entry will occur if we have a confirmation and a strategy inside a dynamic support and resistance zone:
💡 Dynamic Support/Resistance Zone + Confirmation + Strategy = Trade Entry
We can break down the trade entry into 3 steps:
- Find key dynamic support and resistance zones
- Once the price gets into these key zones we need confirmation, meaning, price action telling us what it wants to do next. Meaning, when the price gets to these zones it can go up, down, or sideways… We need confirmation on what the price “wants to do”. We don’t enter a trade just because we reach a support/resistance zone.
- Use additional logic, like a technical indicator, to provide trade entries. By researching through trial and error we can spot edges.
Time Frame Confluence:
There are many ways of spotting a confirmation as mentioned above. One effective way is through time frame confluence, in other words, multiple time frames should express the same bias.
Analyzing multiple time frames, such as monthly, weekly, and daily should paint the same image, be it a bearish or bullish sentiment. Another way is via candle formations, which we’ll cover in the next chapter.
Time Frame confluences examples:
Weekly Candles
Daily Candles
8H Candles
4H Candles
As we can see above, we can see time frame confluence from the weekly until the 4H, giving us a huge Bullish bias. Having a bullish bias doesn’t mean that we can enter the market, let’s make a small reminder on the entry rules:
Dynamic Support/Resistance Zone + Confirmation + Strategy = Trade Entry
In chapter 5, we will cover ways to determine confirmations and start to build a strategy based on price action. We will also cover the different market conditions we can encounter on tradable assets (Chapter 6).
Stay Tuned!
If you missed the other chapters follow the links:
