Most of this course focuses on the daily charting timeframe and for very good reason; Daily charts provide the best view of the market and provide the best/most reliable trading opportunities. I firmly believe this as do most professional forex traders , and if you do a little research and study the charts for a while, you will come to the same conclusion.
However, that doesn’t mean there aren’t opportunities on other timeframes , because sometimes there definitely are. So I wanted to dedicate a chapter on day trading, specifically the 1-hour and 4-hour charts, which are the only two intraday timeframes that I trade, as you probably know. Any timeframe less than 1 hour is too noisy and messy, I highly recommend not even looking at these too low timeframes, they will only confuse you and make you over-trade and lose money.
There are two basic ways to think about day trading on the 1-hour and 4-hour charts:
- Trade 1hr and 4h charts in line with daily chart trends (daily reference)
- Trade 1-hour and 4-hour charts from major daily chart levels.
Let’s see some examples…
Intraday chart trading in line with daily chart trends
When trading the 4 hour or 1 hour chart, the first thing we need to do is look at the daily chart and find out what it is doing.
Basically, we want to make sure that any intraday chart ‘makes sense’ in the context of daily chart conditions and price action. So, if the daily chart is in a strong downtrend, it makes sense to look for a sell signal on the 1-hour or 4-hour chart, if the daily chart is in an uptrend, we obviously just looking for buy signals. .
So we first define our trade by looking at the daily chart. Once we have a clear prejudice about a market; either bullish, bearish or neutral, then we can dive into 4 hours or 1 hour and look for price action entry signals …
In the chart below, we can see that a downtrend has occurred in the daily Gold time frame. This gives us a clear bearish trend to deal with. Notice the breakout on the far right of the chart when price breaks out of the long triangle consolidation it is in, this will be the context of a 1-hour signal on the chart afterwards…
The 1-hour chart time frame below shows us what is happening on the 1-hour chart during the strong breakout from the consolidation we discussed above.
You already have your bearish bias from the daily chart analysis above and the strong breakout just mentioned was already underway when this 1-hour pin bar sell signal formed.
This pin has been well defined and offers huge risk/reward potential. Most importantly, it aligns with the daily chart time frame trend as we discussed above. This is the most efficient and best way to trade forex in 1 hour or 4 hour chart time frame…
In the chart below, we are looking at the AUDUSD daily chart.
Basically, we just want to analyze what is happening on the daily chart before looking at 4 hours for any potential setup.
From looking at this chart, a few things are clear…
- A strong bull run has occurred and this has essentially started a new uptrend, which we have already seen with you after the strong rally and subsequent rise of the market above the support level. Main support through about 0.8920.
- There is an important support level through the 0.8920/0.8900 area and a bullish pin was formed rejecting this level.
- In the next chart below, we can see that just before the bullish pin of the daily chart discussed above, a strong 4-hour chart pin formed from the same important support level. important (first pin on chart below), this way 4 hour or 1 hour charts can ‘lead’ the daily chart time frame and provide ‘early’ forex signals.
- Notice the second pin on the 4-hour chart below, this is also in line with the uptrend of the daily chart…
The next example is what I would consider an ‘ideal’ example of how to trade intraday charts with daily chart trends.
- Notice, in the daily USDJPY chart below, we’ve got a clear and clear uptrend going on… the 8/21 day EMAs have crossed and moved higher and the market is clear. is making higher highs and lower lows… this is a nice consistent uptrend .
- When the market turns back to the EMA, we want to take note. We can watch for daily chart buy signals at the 8/21 day EMA layer or we can drill down to 4 hours and 1 hour at that time and look for forex signals there.
- This is how you trade in line with the daily chart trend from ‘value’/support, as you learned in the trending chapter. If it is a downtrend, then ‘value’ will just mean we are looking to trade forex from resistance instead of support.
- Now take a look at the 1-hour chart below, for an ‘ideal’ 1-hour price action buy signal that matches the higher timeframes – the uptrend of the daily chart…
- You should be able to get a nice tight stop loss on this 1-hour pin bar / fakey setup and the upside potential is huge since you have the weight of the daily chart trend behind you. Starting an obvious trade like this and letting it run for a bit when the trend starts is how you can make a lot of money in the market…
Trade intraday charts from major daily chart levels
In addition to trading intraday price action signals that align with daily chart trends, the next best way to trade them is from key support or resistance levels of the daily chart.
Therefore, the first thing we want to do is identify important support or resistance levels of the daily chart. If you haven’t already, check out these two articles on how to plot support/resistance levels:
Once you have identified key daily chart support or resistance levels, as shown on the chart below, you can dive into 4 hours or 1 hour and watch for price action signals forming near Those levels…
- Notice, a long pin bar reversal has formed on the 4-hour chart below. This pin bar formed at the daily chart critical resistance shown on the previous chart above.
- Long-tailed pins on the 4-hour or 1-hour chart are the best type of intraday pins to trade, the long-tailed bars give you some ‘extra assurance’ about forex trading as it is intraday trading. and therefore riskier than daily chart trading.
- This is the proper way to try to trade the intraday chart against the current daily chart trend; looking for a clear 4-hour or 1-hour price action signal at an important daily chart level….
Here is another example of intraday chart trading from the daily key level.
- Notice, in the daily chart below, the key support is through 0.8190 in NZDUSD.
- The market has basically been range-bound at this point / sideways. In these situations, we can watch for price action entry signals from the key levels of the trading range and in this case it is the support of the range…
- The 1-hour chart below gives us a good long pin bar buy signal from the daily chart critical support mentioned above, through 0.8190.
- I hope at this point you will start to see how day trading fits into the daily chart… Remember, day trading makes sense in the context of the daily chart.
- Therefore, when trading the 1-hour or 4-hour timeframe, we like to ‘reference’ the daily chart to make sure our day trading makes sense given what the daily chart is doing. This is the most important key to day trading and something many traders don’t do.
- Don’t focus too much on the intraday charts. Make sure you start by looking at what’s happening on the daily chart and then let that guide your decision-making process on the 4-hour or 1-hour chart, as we discussed. discussed and presented above in examples.
- Most of my trades are on the daily and 4-hour charts, with much less 1-hour ones. I highly recommend spending most of your time analyzing and trading on the daily and 4-hour chart time frames. If you happen to see a good 1-hour signal that fits the context of daily chart conditions, all is well…but don’t dig for 1-hour chart signals if there is no clear signal. ‘jump’ out at you, because this is a one-way ticket to over-tradable ‘land’, and you don’t want to go there.