Using Multiple Time Frames in Forex

05/03/2011 10:49 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

Analyzing currency pairs using multiple time frames can give powerful confirmation regarding relative strength and weakness, explains James Chen, chief technical strategist, FX Solutions.

Traders are always looking for areas of strength and weakness, either in a chart or in certain sectors against another sector. Our guest today is James Chen from FX Solutions. He’s here to talk about how he visualizes or uses strength and weaknesses to trade. 

James, talk about how you use currency pairs in terms of strength and weakness.

Well, you know Tim, trading currencies has a real distinct advantage in that we’re not just trading one entity, we’re trading two.

For example, if we’re long EUR/USD, we’re actually long euro while simultaneously short dollar. That to me is a very distinct advantage, because not only can you buy strength or sell weakness, but you can buy strength while at the same time selling weakness, so that gives you a very strong directional advantage there.

Alright, so is this something you track every day? In the morning, you’ll get up and do a spreadsheet of this, or is it on a longer-term basis?

Absolutely, I do this every day. I do this on an hour-by-hour basis. I do his on a day-to-day basis and a week-by-week basis. 

I have on different time frames which currency is the strongest, which currency is the weakest, and I look for agreement amongst time frames for the strongest and weakest.

Then how do you pair that with the chart and the technical analysis?

Well that in itself is a strategy that I’m using for intraday trading. I’m looking for a multi-time-frame agreement among different currencies, and I’m looking to buy strength and sell weakness. Buy the strongest and sell the weakest.

Would that take you to maybe a more exotic or a cross pair that doesn’t include the dollar, or do you stick with the majors?

I could very well but I generally stick with the majors. I’m looking at the euro, I’m looking at the US dollar, the British pound, the Japanese yen, the Australian dollar, the Canadian dollar, and the Swiss franc. So that’s pretty much what I’m looking at when I’m trading with this perspective.

We should probably talk about when you say strength and weakness of a currency, what are we talking about, just price?

I’m looking at price. This is purely a price-action play. 

I’m looking for a percentage price change according to different time frames. In the last hour, which has been the strongest in terms of percentage price change against the others, and which has been the weakest.

And it sounds like, for you, it’s a short-term intraday strategy, but could you use this on a daily strategy or even a longer-term strategy?

Absolutely, so if you take a look at agreement on the monthly time frame and on the weekly time frame, then that is much longer-term type of trade. I’m looking, generally speaking, on a daily and an hourly time frame.
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