A moving average can grow in the graph of a week, giving a buy signal, but fall on the graph of a day, giving a sell signal.
You can also give us a sell signal in the one hour chart, but the price sinks to the 10 minute chart, telling us to buy What's going on?
Let's play a little game called ¿long or short periods?. The rules of this game are simple, the graphics will look and will decide whether to use graphics periods or short periods.
Chart 5 minutes.
Note the pair of EUR / USD 5 minute chart of 11/03/05 about 4pm THIS. It is moving above the simple moving average of 100, which is a sign of possible purchase, but look! The price broke and closed above the previous resistance, perfect for choosing a long term right?
Wrong! Look what happened next. The price keeps going up a bit but then falls.
Graph 60 minutes
Look the same graph but in a longer period of time. It is the same time of day. The pair moves above the simple moving average of 100, the last candle broke and closed above the last stand, all signs that the price will go up and you can buy. You decide to go long term ...
Bad decision! The pair fell back to its previous channel. The last candle fell while he could not even stay inside the chart Incredible!
4 hour chart
In this 4 hour chart is still the same day and same time, only in a longer period of time. If you had seen this chart first, even you had rushed to go short or long in figure 5 or 60 minutes?
The price is in a downward channel, which is a signal to the low (bearish). The pair is touching the trend line up on the downstream channel, which is an extremely bearish signal. And it is above the simple moving average of 100, which is a bullish signal (bullish), but that channel makes us cautious. Especially be moving in the top of the trend line.
Look what happened! The price fell miserably, respecting the channel. He touched the top and bounced violently.
Daily Graph
Let a period of time, this time to the period of a day.
Looking at the graph, we see that the pair is moving downward very clearly. In this graph the trend seems really obvious. And if you look at the last candle, it touched the trend line up and returned. Not a good sign bullish. Let's see what happens next.
Hallelujah! The downward trend continued!
So what's the point?
These graphs show the same date and time. But they were different time ranges. You see now the importance of looking at multiple time frames?
If you use only the 15 minute chart for example and everything seems to be aligned, but suddenly change movements, you can never understand what is happening if you look at the charts with larger time ranges. The price may be playing a support line on a graph of an hour, which could not be seen in a 15 minute chart.
The longer the period of time, become more important support levels and resistance.
One of the major mistakes of beginners is to focus on only a graph of time, usually small. To avoid this, always use the charts longer time to visualize trends over longer periods.
