Trading Chart and Trigger Chart
Before taking an entry, a trader needs to apply all his knowledge and experience to make sure that he gets it right. The calculation has to be as meticulous as it can get. Few things are enormously important such as trend, breakout, candlestick pattern, indicators, support/resistance, Fibonacci levels, Pivot points, etc. Different traders use different strategies, tools, and patterns of course. However, one thing is very common in all the traders that they use are the time frames of the Forex charts.
Like other trading tools, a time frame is a trading tool as well. Matter of regret is traders sometimes ignore it, and it never helps them be a good trader. A trader has to know how to use time frames accordingly in his trading strategy. Time frame is used by many traders, though they do not use it as they are supposed to.
To start with, a trader has to choose a consistent time frame that suits his trading style. It could be 1M to Monthly chart. However, considering the consistency 15M, 1HR, 4HR, and Daily charts are the best charts to be used in trading.
In this article, we are going to learn how to trade on the H4 chart and which time frame is to be integrated with it. Let us assume that we are going to take an entry on the H4 candles. Shall we just keep watching the H4 chart? The answer is no. To take an entry, we have to use at least two charts. These are named as:
- Trading Chart
- Trigger Chart
Trading Chart: A trader has to do all his calculation on the trading chart. Trend, pattern, reversal candle, and exit/entry levels are to be determined on the basis of a trading chart.
Trigger Chart: This is the chart which is to be used to take an entry upon the close of a particular candle.
We have chosen the H4 chart as our trading chart, so H1 chart should be chosen as the trigger chart. Many traders use the 15M chart as the trigger chart with the H4 chart. To me, it is not worth it. It could go seriously wrong if we combine the 15M chart with the H4 chart.
Let us now have a look at some charts and demonstrate how to take an entry with the combination of an H4 and H1 chart.
Determining a Trend
Here is an H4-USDCHF chart. Let us find out where it might head to by finding out some clues offered by the chart.
See the H4 bullish candle (red arrow) that was produced at a level where the price reacted a number of times. Without any doubt, this is a significant level and has all the potential to be a flip over support. To add some fuel with it, the reversal candle came out as an engulfing candle. It means the bull candle engulfed the last candle (bear candle) completely. This is a serious indication of the start of a trend. What’s next then?
Breakout, the Determiner of a Trend
We have to be sure that this really is a trend and has the momentum to make breakouts. Can you guess which level is to be broken first to prove the trend’s validity?
Have a look at this
Do you see the red arrow on the top where the price had a rejection from? Yes, this is the first level to be broken to give the confirmation that a trend is established here. Let us have a look at what happens afterwards.
The price consolidated a little and then the H4 reversal candle came into play (red arrow). This is another H4 bullish engulfing candle finishing right at the resistance level. It seems the level is about to be broken. Question is what breakout we wait for, 15M, H1 or H4? As I have mentioned, H1 breakout works tremendously well with the H4 chart. Let us flip over to the H1 chart and have a look at whether the breakout takes place or not.
Here Comes the Trigger Chart
Yes, this is a perfect looking breakout candle. To me, this is an ideal entry. As soon as the H1 candle closes, the long entry should be triggered.
This is the main idea of using multiple time frames in trading. Extremely conservative traders may want to wait for an H4 breakout here. By the time the next H4 candle finishes the price may go too far. That would offer us a bad risk and reward ratio. This is why using multiple time frames is an art that a trader needs to be well acquainted with. The best combination of using multiple time frames are Daily and H4 chart, H4 and H1 chart, H1 and 15M chart.
The idea of using multiple charts is quite simple. However, a trader needs to do a lot of practice to find out which combination works for him best. This also gives him enough confidence so that he is able to use multiple time frames accordingly when it matters.
In our future articles, we will demonstrate some examples on the combination of Daily and H4 chart, H1 and 15M chart.