Top Down Multi-Timeframe Approach to FX Trading
Forex trader, Nick Simpson of Forex-FX-4X.com, outlines the details of an analysis approach that could provide a greater risk to reward ratio.
This discretionary price action article will run through a simple top down analysis scenario. The charts below show a theoretical trade setup using the daily chart to gain a bias and the lower timeframe to trigger a signal entry.
The idea behind this kind of granular trading analysis is that the stop loss can often be placed tighter than when trading the daily charts alone, thus providing a greater theoretical risk to reward ratio. The reality may be that of a lower hit rate, but demo trading, along with extensive back testing, may reveal that this provides a better “expectancy” reading over time.
Essentially, anyone interested in this kind off approach should do their own due diligence, with back and forward testing through a paper trading approach—and no capital at risk. With no further ado we will now run through a basic top down - multiple timeframe - price action analysis approach.
Top Down Analysis Example
The figure 1 chart shows price has reached a 61.8% Fibonacci retracement level on the daily chart and is just above a price pivot area. At this stage there is no significant price action bias.
Things become a little bit more interesting on the figure 2 chart.!--start-->