In the comments section of my previous blog there is a discussion I have with one of our traders here on using the H1 time frame. Below I have posted my response to him in light of this. Since most people will probably not go back and read through the comment section I thought I would cut and paste my response here as it might be helpful to others.
My response emphasizes what I want new traders to understand more than anything that there is an inherent economic reality that moves the market and that with some practice you can understand these movements and make money from them. I make no claims that you’ll be an expert trader in a year or two or that I have the power to make someone an expert trader, but I do believe that there are specific techniques that will give you the edge you are looking for if you are willing to put in the time and work hard at trading.
One other thing I would like for you to do is take some time maybe 20 or 30 minutes to think through the things I mention in this article. Maybe even mediate on them and think deeply about them as it will shape the way you filter information. Think about it deeply enough to become a part of the general way you view the market so that as you develop your skills it will be a foundation for you to fall back on when you start to drift and become overwhelmed with the information that is out there. A solid foundation is necessary when learning so that you have something to come back to from which everything else finds its source.
Here is a copy of my response:
Absolutely, you can take trades following the hourly. It is fairly close to the H4 in that it provides you with 4 candles for every 1 candles on the 4 hour chart. Look back on “part 4″ of my most recent post (http://www.forex4noobs.com/blogfet/pair-eurusd/eurusd-live-trade-041510-part-4/). Look at the point when I closed my short position and think about why. Though I am short there, I am closing because I know that buyers are potentially there based on where the current price is in relation to support. And what is the support there? It is a point of reference where traders will determine that the price is inexpensive enough to buy it here in order to make profit. When the hour closes in the manner that it does it becomes cause for potential buyers to sit up and take notice and for current sellers to do the same so that what you have is:
Step 1: Traders in shorts from 3520 and higher are now exiting their positions and taking profit. In order to exit they must buy and thus you have the price react the way that it does so that it starts forming candles that tell us sellers most likely are done here.
Step 2: New buyers come in when the market begins to establish that this is the new inexpensive price and thus a buy here will most likely return a profit.
Step 3: As more confirmation comes in that there is no supply below additional buyers come in also combined with additional sellers getting out (buying) causing buying to tip a little bit further, creating demand, which causes the price to rise.
Step 4: When price reaches the 3530 area buyers off the H1 support at the 3500 area are now considering getting out. Why? Because there is incentive to do so based on trending price and previous price setting which we call “resistance”. Could the price break through and continue? Absolutely, but it will initially struggle for sure. My video doesn’t cover the following price movement so you will have to look at it on your own charts, but you’ll see that the very next candle from the one I exited on saw buyers take the price to around 3540 and when the price got to that point:
Step 1: Traders in longs from 3510 and lower are now exiting their positions and taking profit. In order to exit they must sell and thus you have the price react the way that it does so that it starts forming candles that tell us buyers most likely are done here.
Step 2: New sellers come in when the market begins to establish that this is the new expensive price and thus a sell here will most likely return a profit. In this case it is a higher probability trade than the previous long position as it is with the current trend move.
Step 3: As more confirmation comes in that there is no demand above, additional sellers come in also combined with additional buyers getting out (selling) causing selling to tip a little bit further, creating more supply, which causes the price to fall.
What then is the difference between every price between 3510 and 3540? What’s the difference between 3510 as opposed to 3515 as opposed to 3520 or 3525 or 3530? Because traders want LOGICAL, REASONABLE, AND RELIABLE points of exit and LOGICAL, REASONABLE, AND RELIABLE points of entry. The difference between every price between 3510 and 3540 is NOTHING….THE DIFFERENCE IS NOTHING…………other than currently the market has marked for us a point of reference where potentially traders will determine that the price is too expensive at 3540 for further buying and so they sell. And that is why they sell in that area as opposed to any other price in between, and it would be the safest place for a sell as opposed to every price in between. But if you are not in at the bottom then you don’t want to get in until the next opportunity because at any other price in between you are increasing your risk. You are protecting yourself so that if the price does not get to 3540 area where resistance and trendline are then you don’t get stuck out in the middle if buyers can’t follow through and push the price up. If the buyers can’t follow through, at that point you can potentially get out of your trade at BE or with a very minimal loss. So if you entered at 3510 and the price runs to 3525 and you are looking for 3535 or 3540, but at 3525 for whatever reason buyers can’t continue and demand starts to fail you have opportunity to manage the trade better, but if you enter at 3525 in the middle of the move out in no man’s land where there is no s/r or trendline to support your entry then you are increasing your risk. So instead of being anxious and feeling like you are going to be left out it is better to wait for a SAFER place to enter. That’s what everyone else who is an intelligent trader is doing because they don’t want to put their capital at unnecessary greater risk. They would rather wait another 15 or 20 pips for a better price and a safer entry where they know buyers will be getting off the bus. If they don’t get that price then they have averted a larger loss so it is a win win all around.
So, after all that, yes you an trade the H1 frame and use it in conjunction with H4 and D1.
