This concept stands in between fundamental and technical analysis because it’s very important to both. Nevermind their differences, a technical analysts and fundamental analyst will still have to navigate multiple timeframes to decide which trades make sense, and which simply do not.
Multiple Timeframe Analysis
One element that we neglected in the tutorial for technical traders was the importance of multiple timeframes in decision making. Depending on which chart you’re reading, you might see a bullish signal, or you might see a bearish one.
You see, in the short-term, a technical trader might spot an emerging bullish trend on the 15 minute candlestick charts. A technical analyst might see this:
That chart shows bullish strength, the RSI is south of 30, and a buy signal is confirmed with a candlestick pattern. But when we get the “big picture” view from a daily candlestick chart, we might just see that there is reason to go short:
See? In the big picture view, we’re seeing that the currency pair is primed for a short.
Fundamental Analysts and Timeframes
Fundamental analysts have to stay on top of multiple timeframes, too. In the short-term, it’s easy to make a very obvious case for a currency pair with a piece of news. Each month, the nonfarm payroll report is released to the market. This is better known as the US unemployment report, and we’ll discuss it in-depth later in our discussion on fundamental analysis.
The non-farm payroll report might come out strong—more jobs might be added than expected, which is bullish for the US economy, and the US dollar. But does one month’s employment report really mean anything in the long-term?
Traders have to dissect which information is actionable. Fundamental analysts could make 50 pips on a short-term short order on EUR/USD, making money when the US dollar rises against the Euro. But what will follow for the next month? What if this strong employment report is just one of many bad employment reports?
Can the market really sustain a higher dollar price for the next three to six months?
The Types of Traders
In the coming section, we’ll discuss the many types of traders in the foreign exchange market. Some trade the short-term, intra-day movements in currencies. Some trade intra-month, holding a currency pair for only a few weeks. Others, though, trade for the long-term, buying and selling based on many months of data.
What excites an intra-day trader probably won’t even register for the long-term investor. The opposite is also true. The elements that bring the long term investor into a trade are likely not at all exciting to the day trader.