Applying Multiple Time Frame Analysis

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Use Multiple Time Frame Analysis

A currency pair exists on several time frames – the daily, the hourly, the 15-minute, even the 1-minute!

When trading we use what we call multiple time frame analysis. This means you do not use only one time frame to place your trade. You will need to look at the next time frame higher so that you can gain perspective on the general trend and then use the lower time frame to make your entry.

This is because the direction of the trend could be different in each time frame. For example EURUSD could be an uptrend in the daily chart and a downtrend in the 4-hour chart. Using multiple time frame analysis will help you minimize losing trades because you will be able to identify where you are in relation to the bigger picture. There could be a new trend emerging from another time frame than the one you are trading in, and if you don’t check it, it could hurt you.

See point B in the figure above, the market is in a downtrend in the 60-minutes after it completed a failure swing. However if you look at the 4-hour chart, you can see that only the wave is down but the trend is still up. So if you just looked at the 60-minute chart you would have sold at the point where the market would recommence its uptrend.

How to Analyze The Market

The proper way to analyze any market is to analyze it in at least two time frames. Note that the pair of time frames you use will be related by a ratio of about 1:4. What does this mean?

For example, you would not use a 1 minute time frame to trade and use it with a monthly chart to look at the trend! This is an extreme example but it demonstrates that you should use one time frame above for the trend versus the time frame you are trading in. If you are a long term trader, use the weekly chart to determine the trend, then go down to the Daily chart to trade. A short term trader will use the Daily for the trend and the 4 hour to trade. In our case we use 4-hour charts to analyze the big picture and 60-minute charts to enter our trades. The trades in the direction of the 4-hour trend are more likely to be winners.

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Trading Multiple Time Frames – The Key to Successful Trading

Multiple time frame analysis is one of the most important things you should be doing before you take every trade.

So, in order to get you to remember this before you bust out your charts and start trading, consider this true story. It explains what multiple frame trading is and why you should use it on every trade you take.

If you live in an area where there can be bad weather for a few days in a row, you understand the importance of knowing what the weather is going to be like if you plan on doing anything outside. (i.e. Picnic, motorcycle ride, sporting event, outside concert, etc.)

Especially if you live in areas where there are always a potential for tornadoes, hail storms, snowstorms, hurricanes, and so on.

So let me explain a few very important lessons (as traders) we can learn by simply scanning the weather radar. Also, read the Simple way of trading multiple time frames in forex.

Lessons Traders can Learn from the Weather Radar

This may sound silly but trust me, this is some good stuff…

The other day I was planning an outside activity that required there to be no rain, no snow, no excessive winds, etc.

You get the point…

It needed to be nice and sunny out at this time (4 PM).

Here is what the radar would have looked like earlier in the day before the special event I was planning at 8 a.m.

So at 8 a.m., it was looking like a beautiful day. The birds were chirping, the sun was out, a light breeze.

Just overall perfect.

But remember, 4 p.m. was 8 hours away at this point.

So what I then did was zoom out of the weather radar to see if there was any inclement weather heading in my direction and will be at my location at 4 p.m.

Well as you may expect, here is what I found:

Snow/rain storms were heading in quickly. This horrible weather will be at my exact location roughly around the time of my planned activity!

Long story short, I ended up rescheduling my event due to the inclement weather that was going to take place.

To tie this example into our trading habits, if I would have not “zoomed out” at a larger frame and saw what was taking place a few hundred miles away, I would have been devastated when the time came for my event and there were 6 inches of snow on the ground.

This exact scenario can be compared to multi-time frame analysis. We do as traders on our charts every time we trade.

The Importance of Multiple Time Frame Analysis

Never get caught in just taking trades on one timeframe. Think of it like you are the Forex multiple time frame indicator. You are the indicator that scans different time frames.

What multiple time frame analysis is, is simply this:

If you trade on a 5-minute chart, you should have your eyes on 30 min and 1hr time charts. If you trade on a 15-minute chart, you should be checking out the 1hr and 4hr chart, etc.

Here’s an example:

You see a move like above on a 5-minute chart and you think “wow I need to get in the short trade.”

But what you have not done is “zoom-out” and check other larger time frames that may be showing something different.

As you see above on a larger 1-hour time chart, this may have been a simple retracement before heading back in a bullish trend.

That is why it is important to check other time frames every time you want to make a trade.

Most of the time, you will learn a great amount of information if you bump up to a larger time frame or bump down to a shorter one you are currently on. Look for prior support, resistance, a trending pair, or one that is in a current channel.

Here are some of the main advantages of using this type of approach before you enter a trade:

Benefits of Multiple Time Frame Analysis

  • Key levels of support and resistance may exist near your trade, but that can’t be seen on the time-frame you are trading on.
  • The trend may appear differently on the time-frame you are looking at than where the long term trend is moving.
  • Price may appear to have room to move on one time-frame where it is actually quite over-extended on a lesser time-frame.
  • You can make a much more precise entry point on shorter times than on longer ones.

  • You may take a great trade on a short time-frame and hit your target, but not realize you could have let it run for a way bigger profit due to the longer-term trend.

We hope this information helps you see the importance of doing this multiple time frame analysis before you ever consider taking a trade. Don’t forget to read about the multi time frame moving average strategy.

So maybe next time you check out your weather radar on your phone/computer you will think about this example. Remember the importance of multiple time frame analysis. ��

Thanks for reading!

Please leave a comment below if you have any questions about Trading Multiple Time Frames!

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Technical Analysis Using Multiple Time Frames

Technical Analysis Using Multiple Time Frames

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Introduction – What’s Technical Analysis Using Multiple Time Frames?

Technical analysis using multiple time frames is a trend trading strategy in which the trader combines a short-term time frame, a medium-term time frame and a long-term time frame to produce the true trend of the asset and trade along the direction of the trend. In other words, the trader searches these time frames to spot areas where the short-term and medium-term time frames align with the trend on the long-term time frame. The entry for the trade is then executed on the short-term time frame.

The AG Markets MT4 platform is loaded with several time frames. The time frames start from 1-minute time frame and you can get up to the monthly time frame. In between we have M5, M15, M30, H1, H4, Daily and Weekly time frames.

The essence of multiple time frame analysis is to set a trade on the lowest time frame in a direction which is in tandem with the long-term trend of the asset. This will ensure that the trader does not go against the trend when setting a trade.

The Different Time Frames

The long-term positions seen on the daily, weekly and monthly time frames are typically set by long-term position traders with high net-worth. Some of these positions are held for years. These positions are typically not held by the man on the street with just a few hundred bucks to his trading name. These positions are held by the big dogs whose money rules the market. The small traders are usually in trades for a short time. Now since you are mostly likely going to be using the AG Markets MT4 platform, you will definitely not be in a position for years. Your money is best served in shorter trades so you can have a faster turnaround time. Even the big dogs reserve some of their capital for quick entry/exit high frequency trading.

So, if you have to trade a short-term position such as going long on a currency pair with a trade turnaround time of 30 minutes maximum, you need to be sure that the trend assumed by position traders on the long-term time frame charts is actually an uptrend and not merely an upside retracement of a downtrend.

Multiple Time Frame Analysis

Multiple time frame analysis does not place excessive emphasis on one time frame. You will use the long-term time frame to determine the trend of the asset, but the single candle that forms the price information for a day’s worth of trading on a D1 chart will not tell you where to set the trade, and will probably not tell you what technical entry will mirror the trend. This is where the short-term time frames come in. They can show a trader whether there is a technical basis to enter a trade in the direction shown by the long-term charts.

Let us illustrate multiple time frame analysis with a simple example.

Step 1

Pick an asset to trade and open the Daily chart (D1). From the D1 chart below, gold is in a downtrend. Therefore, the objective here is to initiate a short trade. The day is November 11, 2020. All we see on that day is a very thin doji, which is not enough to make any trade decision.

Daily chart (Gold)

Step 2

Move down to the 4-hourly chart to get a broader view of what is happening on the day in question. The H4 chart shows that the asset is in a downtrend, which confirms that the market is behaving according to the dictates of the trend seen on the D1 chart.

At this point, there is still not enough information to make a trade decision. So, the trader has to add the H1 chart to see if some more information can be obtained about where and how to make the trade entry.

Step 3

Bingo! The H1 chart is loaded with a daily pivot indicator, which shows the pivot points for the day automatically. Here we see that the price action started the day with a mild upside move which was rejected at the R1 pivot, resulting in the formation of several doji and pinbar candles. The last of the pinbars closed below the R1, so a short trade would be the best option here, with target set to the daily pivot which is the nearest support. It took about 4 candles to get there (4 hours in length). The daily pivot was broken two candles later, and a Sell Limit entry which allows for a brief upside pullback to the daily pivot would be the most logical entry, with target at S1.

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