The analysis of higher timeframes is another thing that traders neglect to carry out as they should.
The benefits of this are pretty obvious too, if you get a great sell entry on the 15 minute time frame but the price is at a major area of support on the daily chart, chances are that trade will result in a loss.
If you checked the daily chart and saw the support you probably wouldn’t have entered in the first place, thus saving your money from going down the drain.
Higher time frame analysis also usually explain those times when everything says price will go one way but then it just suddenly reverses on you with no warning.
So if you check the higher timeframes first you will dramatically reduce your losses in these scenarios.
This kind of analysis is called a top down analysis, and basically refers to the checking price action of the higher timeframes before you even open your smaller ones.
I have laid out an order for your Top down analysis for day trading below:
Look for any significant areas of support or resistance that could hold price up.
Or you can use candle stick patterns, such as reversal bars etc… again with the intention of entering off the smaller time frames using your system, but knowing there was more strength in the move. Also look at the price action, is it making successions of highs and lows, if so which direction are these highs and lows going?
Look for market flow, and any levels of support or resistance such as old highs or lows that could get in the way of your potential trade.
Again look for market flow and any formations that price may be forming. Also determine whether the price is making highs and lows, these successive highs and lows give really powerful clues as to prices next move.
Remember the point of doing a top down analysis is to find a confluence of reasons to be trading in a certain direction, and it’s also important to note that the higher timeframes rule the lower ones, so if there is a mixed outlook on the lower timeframes move up to the next highest timeframe until the picture becomes clearer and you get multiple things telling you which direction to be trading in.
You won’t see things in your top down analysis every day, rather it is to be used as kind of a protection for your trading…if there is anything that’s going to cause your trade to fail you will see it…or if there is a strong possibility of price reversal you know in advance so that you can start looking for entries on the lower timeframes etc..
Or to keep things really simple for yourself whilst you are learning your top-down analysis can just involve checking the market flow on all three of the higher timeframes, to find which direction is supported by the majority of them. For example you may check all three timeframes, and find that 4 hour and daily timeframes both agree that the market Is going long, so despite the fact that the 1 hour time frame is showing market flow as down, you have a nice higher timeframe confluence showing you that long is a much more supported direction at that time, meaning that you can then start checking other things for your entry into the market in that confirmed direction.
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