What should I do with weekly charts when I trade currency

Many currency traders approach currency trading differently. From an individual’s point of view, the differences have to do with experience, personal preferences and risk appetite. From a purely technical point of view, traders can trade currency in 2 ways: short term momentum based trading and long term directional trading.

When individuals trade currency using momentum-trading, they look to harness short term ‘explosions’ in price movement. These movement may be counter-trend but fits the individual trader’s time horizon nicely. Short term drivers like news, policy announcements are taken advantage of to time the explosion in momentum. From my observation, 9 if not 10 out of 10 individual traders fall into this category. To these individuals, long term charts such as weekly ones have little input in their trading strategy.


Weekly charts are important to currency traders looking at long term directional trading

Long term currency traders (may be more appropriately called swing traders or to some extent, investors) see daily or intraday price movement as noise. Their trading intention is to ignore noise but capture long term price movements.To this group of traders, the weekly chart is indispensable. It could also provide the most important indication of long term direction trend.

I’d like to bring your attention to the previous blog “Should I ride the 2-month rally in EURUSD?” In the post, I pointed out clearly that there are 2 points of view separated by time horizon. It is clear that traders looking at two different charts can draw different conclusions. However I asserted that daily charts show noise whereas the weekly chart of this particular EURUSD pair actually shows a 5-year decline that is likely to continue. This is the essence of looking at long term directional trading.

In other words, there as many flows in the market as the time frames a trader can look at. But the strong flows can only be found in the higher time frames.

EURUSD weekly chart

Despite bullishness in daily charts, weekly charts tell a clear story of declining EURUSD


Elements in weekly chart that are helpful when you trade currencies

  • Drawing a long term multi-year extended trendline that tells ‘big picture’ story (See ‘Significant support resistance levels are stronger: USDJPY case study‘)
  • 52-week or previous year highs and lows contribute sentiment to the picture; for example in this illustration, EURUSD falls back below 2011-low signals futility of recent rally
  • A simple line chart prints a sufficiently clear picture that removes the noise and ‘distraction’ of price volatility in lower time frames

A trader looking  at long term directional trades are well served to look at weekly charts and avoid the noise in lower time frames like daily charts. A day trader can continue to trade momentum-based explosions in lower time frame. But it would be better to also include once a week analysis in the higher weekly chart. If nothing else, look for overhead resistance or support so in order  to avoid over-committing at strong price levels. The best outcome is to marry momentum-based trading with long term direction. When the two are pointing at the same direction, the outcome is the most profitable.

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