The daily is the most important time frame I watch. Here’s why…

How does the daily time frame factor into intraday entries?

A little background: The daily time frame was where I began my trading career back when I was predominantly a futures and stock trader. This was back in the early and mid-90’s when I know little to nothing about what the foreign exchange was. I have traded currencies but I was not trading spot until 1999-2000. It was my opinion then as it is now, that the spot offered me more liquidity throughout the day and therefore better risk management. That’s why I’m still trading it today alongside my “forex market pulse” futures contracts. Much of what I share here is a direct result of my nearly 20-years of futures analysis and trading as I truly feel that understanding how forex and futures work together will offer an distinct edge in your forex entries. Another advantage, I believe, is understanding the price movement of the most psychologically significant time frame, the daily or “end of day” chart.

When I first began trading, all I had access to were daily chart. My charts were mailed to me once a week, arriving on Monday, and I would update these by hand until the next set of charts arrived in my mailbox the following Monday. This is before the internet…and before I began trading spot forex.

The daily charts were a slower paced trading and analysis. My indicators were simple to calculate as they had to be because I didn’t want to be burdened with time-consuming, manual calculations. PC-based, real-time charting platforms really didn’t exist unless you subscribed to a satellite-feed or direct-feed like Bloomberg. They were very expensive and frankly I didn’t have the skill set early on deal with a live, intraday price feed. I was updating charts by hand for the first three to four years of my trading – this was while I was in high school and college. Using exclusively daily charts allowed me to take my time with my analysis and gave me a tremendous “hands-on” feel for price action without the inclusion of indicators. I was looking for the tried-and-true basics: trendlines, support, resistance, and chart patterns and eventually Fibonacci Retracements. These habits haven’t left me nor has my dependence of the psychology of the daily chart.

Consider that the daily is the time frame that most market observers will use to gauge the sentiment, momentum, and trend. Because of this, the “overall”, most generally accepted opinion will be consistently that of the daily and it’s my job then to determine the market trend of this time frame before I enter intraday trades. (The five-minute is the only exception to this because it is so short-term.)

The daily offers a directional bias. The 34EMA Wave can easily be used within a one-year market memory or “lookback” to determine whether the dominant psychology is bullish, bearish, or neutral. I find that when the daily is clearly in a mark-up (uptrend) or mark down (downtrend) phase that it’s easier to position my entries in a way that is working with the daily’s trend versus when there is little clarity about the market when the daily moving in a sideways range (either accumulation or distribution).

My first step then is always to assess the direction of the daily chart. For example, currently I am seeing many traders getting whipped around by the AUD/USD, USD/CHF, and USD/JPY mainly because these pairs are in a sideways range on the daily.

When the daily chart is not offering a clear-cut view of a market trend (up or down) I will often react by focusing on the shorter-term five and 15-minute time frames or simply move onto a pair that has a trend on the daily. Examples of trending daily charts right now are the EUR/USD, EUR/CAD, EUR/GBP, EUR/CHF while the GBP/USD and CAD/JPY are borderline. Notice that the majority of the pairs in trends are not correlated to the U.S. Dollar.

And here’s my ForexAM program from this morning where discuss the dollar’s resistance, Dow’s ceiling and what’s next for the USD/JPY and AUD/USD.

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