Chart analysis in multiple time frames

The first and arguably the most important step in technical analysis is to identify trends and support-resistance levels on currency pair charts. And the most accurate results are achieved by initially examining the longest-term applicable chart, before drilling down to the shorter-term time frame one actually intends to trade. This provides the clearest possible interpretation of the currency pair’s price movements in the past, as well as clues to its movement in the future.

The longest-term applicable chart for most retail forex traders, those without the deep pockets of hedge funds or commercial accounts, is the daily chart. It’s advisable even for day traders to become aware of support-resistance levels and trends on this larger scale prior to becoming immersed in the ups and downs beneath the microscope, as it helps to keep the forest in sight as well as the trees and leaves.

It’s also worth noting that, the longer term the chart at which a support-resistance level displays its influence, the stronger that level is likely to be and the more influence it will wield on shorter-term charts. The more times a support-resistance level withstands testing on a long-term chart also gives an indication to its strength on hourly or shorter charts.

Below is the daily chart for the Euro versus the U.S. dollar, currency pair EUR/USD:

This macro-level chart reveals several major support-resistance levels and trends. Look for areas where the price action turns at least twice, where diagonal trendlines or channels appear to restrain the price bars, and areas of consolidation where the bars form triangles.

Beginners to technical analysis may wish to attempt locating these levels themselves prior to studying the marked-up chart, below:

The technical levels identified on the longest-term charts are the most stable ones, least likely to change over the passage of time, and therefore the ones that require re-examination and adjusting the least often.

These levels also tend to influence future price action even though their immediate impact has faded and they might even have been broken. For example, note the small triangle outlined in purple in the bottom left corner. Its lower, support trendline crosses the centre of the chart and serves as resistance during the long-term bullish trend. For this reason, technical traders shouldn’t be too quick to delete lines even when they’re broken.

Once these levels have been identified on the daily chart, drop the periodicity to four hours and repeat these procedures, then again on the hourly one. The levels identified on these charts carry less significance, and the corresponding lines can be deleted when they no longer appear relevant.

When trading utilising these major technical levels, remember that if the price action successfully breaks through one and closes beyond it, a larger price move may be underway. However, if the price action turns at that level, it may signify a reversal to follow.