Forex Investment and Currency Trading

The first step is to commit to making time for market analysis. The more regular your analysis, the greater the feel you’ll develop for where the market has been and where it’s likely to go. Also, the more regularly you update yourself on the market, the less time it’ll take to stay up to speed. It’s a lot easier updating yourself every day than it is trying to catch up on several days’ worth of market news, data, and price developments.

Give some long, hard thought to how much time you can realistically afford to devote to market analysis before committing yourself to a specific routine. You may find you’re able to devote only a relatively short amount of time each day, so focus your energies on only one or two currency pairs. If you have the time, you can more effectively follow and analyze multiple currency pairs.

At the minimum, you should be prepared to devote at least an hour every day to looking at the market and keeping tabs on upcoming data and events. We like to follow a routine that focuses on:

• Multiple-time-frame technical analysis to identify support and resistance levels and to track overall price developments
• Candlestick analysis after each daily and weekly close
• Reading economic data reports that have come out overnight
• Reviewing market commentaries to stay on top of major themes and overall market sentiment

This may seem like a lot to squeeze into a single hour, but with time and practice, you’ll get your charting and market information sources will lined up so you can streamline the entire routine.

Performing multiple-time-frame technical analysis

Multiple-time-frame technical analysis is nothing more complicated than looking at charts using different time frames of data. The basic idea is to look at the big picture first to identify the key longer-term features and then drill down into shorter data time frames to pinpoint short-term price levels and trends. Our own preference is to focus on daily, 4-hour, and 30-minute time frames, but you can use whichever time frames you think best match your trading style. Short-term traders, for instance, may want to focus on 2-hour, 30-minute, and 5-minute charts to better reflect the narrower time frames of their trading.

Whichever time frames you end up working with, we strongly recommend that you include longer time frames, like daily and weekly, so you can get a sense of where the most significant price levels are. The strength and significance of support and resistance levels are a function of the time frame in which they’re evident, with longer-term technical levels holding greater meaning than shorter ones. You don’t want your focus to become so narrow that you lose sight of the big picture and go with a break of short-term resistance, for instance, when major daily or weekly resistance is just beyond.

The good thing about daily and weekly charts is that the technical levels cont’ change quite as frequently as shorter time frames, so you can probably make do with updating the daily and weekly charts much less often.

For example, you can start by looking at the daily chart to identify the big levels and draw in longer-term trend lines. Then you drill down to the four-hour chart, where you take a fresh look based on what you’re seeing in that time frame and draw in more trend lines to encapsulate any price patterns or trends. To finish, you go down one more level to the hourly charts for a close-up view of the market’s most recent price action.

Make sure the charting system you’re using has the ability to save trend lines across time frames, meaning that a trend line you draw on a daily chart should also appear on the four-hour and hourly charts, and vice versa. Also, make sure the charting system has the ability to save the entire chart so you don’t have to redraw the trend lines every time you pull up the same chart.

On subsequent updates, keep the trend lines that still appear to be valid (meaning, price action has not broken through them), and erase trend lines that are no longer active or have been broken. But don’t be in too great a rush to erase broken trend lines, because they’ll continue to act as support or resistance, but in the opposite direction.

When support is broken, it becomes resistance, and vice versa.

Over time, you’ll get an idea of how good you are at spotting meaningful trend lines by the frequency with which you have to discard old trend lines. The longer the trend line contains price action or the longer prices react substantially when a trend line is broken, the more significant the trend line was.