Downward Approach to Futures/Commodity and Forex Trading

There is an old saying about 'not seeing the trees from
the forest'. When it comes to deciding whether to buy or sell a
Futures, Commodity or Forex contract, this can actually be a good
thing in the beginning. At the level where the trees are, the
lower time-frame such as the daily price chart, you witness the
market (Futures, Commodity or Forex) trending up, down and
sideways. In fact, it often can appear quite 'noisy' to the
untrained eye. Deciding whether to buy or sell based solely on
what you see on this lower time-frame can be quite a challenge.
However, approaching this problem from a 'higher' view can be a
great help in smoothing out the overall view of the market in
question. This would be looking at the 'forest' first before
focusing on the 'trees'.

Often you can get away with just going one time-frame above that
which you trade from. For example, if you often allow your trades
to continue overnite for one or more days, then it is likely that
you use the 'daily' price chart to make your final entry
decisions. Therefore, one time-frame higher would be the 'weekly'
price chart, where each price bar represents a whole trading week
(5 days). If you are a day trader, one who does not normally
leave a position on overnite, and you use the 5 minute chart for
your final timing decisions, the 10-min, 30-min, 1 hour and daily
charts are higher time-frames in respects to your preferred time-
frame for timing trades. For the rest of this article, we'll
assume you normally use the daily chart to make your Futures,
Commodity or Forex trade decisions. Thus, the next time-frame
higher (our forest) would be the weekly chart.

Start by taking out your weekly price chart of the market you
wish to analyze. What you want to look for is whether the overall
weekly trend is up or down. Basically, a bull trend is one that
forms higher swing bottoms and higher swing tops, and a bear
trend forms lower swing bottoms and lower swing tops. There are
exceptions to this general rule. However, an indepth discussion
on trends is beyond the scope of this article. I invite you to
visit my repository of articles and lessons at the ProfitMax
Trading, Inc. website for more information on this subject and
others.

If your examination of the weekly chart reveals that it is
bullish, then you'll want to focus on looking for buying
opportunities off your daily Futures, Commodity or Forex price
charts. When looking to buy off the daily chart, entering as
close to retracement bottoms will provide you with the lowest
risk and highest profit potential trades. If you determined the
weekly trend to be bearish, then you'll be looking for shorting
(selling) opportunities, selling off of rally tops. If the weekly
trend is narrow sideways, find another market to trade unless you
like to trade channel swings (hopefully you are aware of channel
breakouts - be prepared). Wide sideway trends on the weekly
charts would suggest you simply trade in the direction of the
current weekly direction. If the weekly trend is currently moving
up, buying off the daily chart on those retracement (dips) pivot
bottoms will provide you with the better trades.

Whenever I plan a trade, I look at the larger picture. I want to
get a good idea which way the market wants to go. If you look at
any higher time-frame chart, such as the weekly or monthly price
chart, you will see that when the market is bullish for example
that the daily chart will be bullish for a very, very long time.
Momentum is a very powerful attribute in the Futures, Commodity
and Forex markets, and the trend of the higher time-frames will
often tell you what that momentum is on the daily chart (the
lower time-frame that you are basing your final buy/sell trading
decision from.)

Be aware that even weekly and monthly trends can change at
anytime. Yes, you can go to the next level up, monthly charts,
and note which way it is moving to get an idea of likely, weekly
direction. But be careful not to lose your perspective. Although
trends take a long time to change, someday it will. At that point
you will need to be prepared.

Using this 'downward approach' to Futures, Commodity and Forex
trading, you are getting the 'big picture' first. You are looking
at the 'forest' before getting down and looking closer at the
'trees'. Once you have done this and have a good idea what the
longer-term picture looks like for prices, you can then focus on
your timing technique to 'fine-tune' your trade timing decisions.
As many successful traders know, TIMING IS EVERYTHING! As a
market analyst and trader, my preference for timing is based on
market cycles and their cumulative affects, that which causes
market tops and bottoms.

Always remember that it is the 'law of probability' that you want
on your side of every trade. You want the odds in your favor. You
do not want to risk too much or be overly exposed. You want to
buy low and sell high. All this depends on you seeing the 'big
picture' as we have just discussed, and a method of precision
timing to get the best price possible for the lowest risk
exposure.