The idea behind my trade entries is to focus on what the pair and the specific time frame is telling me. The "message of the market" can be seen in a different light across the individual time frames. This is a concept that many traders miss. In fact, the most commonly followed time frame may be the daily and it is this time frame that is most often used to determine a pair’s trend. But this view of the a pair would cause a trader to miss out on market cycle shifts that can commonly be seen intraday especially across shorter term time frames like the 15, 30, and even 60 minute charts.
Viewing each chart as a stand along reflection of the market’s mood is the key to finding more opportunities in the market. This should not equate to more active trading, simply more varied trade selection. Think of each time frame as a different view of the psychology of a pair. Certainly a five minute chart is a more short term view of market opinion than the trend (or lack of) on a daily chart. While these two time frames could not be further apart on the time frame spectrum, it makes the point: Short term time frames reflect a short term opinion and shorter term opinions can shift quickly and often. This can also be broken down to simple arithmetic. A five minute time frame will have 12 new candles each hour. Contrast that with a one hour chart which will have 24 candles each day. Is it more likely that the five minute chart will cycle through uptrends, downtrends, and sideways markets more often and quicker than a 60 minute chart? Ofcourse.
The idea behind market cycles is nothing new. It was discussed and explained at length by Charles Dow in the early 1900s. Dow wrote of three market trends: accumulation, mark up, and distribution. Accumulation is a quiet, narrow ranging sideways market while distribution could be considered its cousin since it is also a sideways market cycle but more volatile and wider ranging. Mark up is simply an uptrend. Dow wrote about the stock market and thus his theory of market trends has a bullish bias. For forex traders we will add a fourth cycle: Mark down or a downtrend.
On any given day, the trend of a shorter term time frame could be up while the daily trend could be down. The EUR/USD is a perfect example of this. Notice that the 15 minute chart of the EUR/USD was in an uptrend for most of the Monday trading session. It did subsequently correct this move higher and is currently trading at 1.3630.
All the while the 15 minute was trading higher, the daily EUR/USD did little to change the direction of the overall downtrend (mark down cycle).
Here is an example where if a trader did want to seek out a buy entry on the EUR/USd and follow a short term trend shift, the 15 minute time frame could have helped set up such a trade. The daily chart - in sharp contrast - is firmly with the bears as prices continue to test the downtrend resistance at the 34ema low and makes new lower lows as seen by the March 3rd 1.3619 low.
By viewing the same pair but across different time frames the longer and short term view of market opinion can not only be identified and separated but also potentially traded.
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Note: As with all major economic releases there could be significant price volatility with this announcement. Currency spreads will typically widen just before the release and will remain wide for a few minutes after. If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly. For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882. A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882. The same would be true with a Sell Stop.
Basically, plan on the spreads widening and if you are trading with a Buy or a Sell Stop entry order, do not anticipate being filled at your entry price. You will be filled at the prevailing market price after the release, and this market price could be significantly different from your desired price of your entry order.