Multiple Time Frame Analysis

Guiding You to Multiple Time Frame Analysis

Tue Oct 26 2021 14:39
It’s common practice for many traders to lock in on a time frame and choose to get stuck there. Therefore, they find themselves focusing too much on that particular time frame, forgetting the bigger picture.

A closer look at these types of traders reveals that they mostly trade impulsively and are driven by emotions.

To remain profitable in this business, you have to ensure that you remain focused and trade objectively. This post will guide you through multiple time frame analysis techniques and show you how you can become and remain profitable. Continue reading to learn more.

What is multiple time frame analysis?

Otherwise referred to as multi-time frame analysis, multiple time frame analysis is just how you analyze that one currency pair but in different time frames. This analysis, especially in a larger time frame, is vital in establishing a longer-term trend trading

On the other hand, shorter time frames would be ideal for spotting entry points into a market.

The process follows a top-down approach during trades to enable traders to choose the appropriate time frames for analysis to enable them to carry out technical analysis with the aid of multiple time frames. 

This information will be the basis for confirming or rejecting a trading bias.

Essentially, the ratios 1:6 or 1:4 are important when choosing time frames. The premise here is to uncover the tinier price movements for the well-timed entries into a market. 

Therefore, you should spend most of your time on smaller time frames since a larger percentage of the price movements have an inconsiderable bearing on the trade at large. You will be saving yourself a lot of stress in case of rapid market shifts.

Identifying the best time frame

It doesn’t matter whether you are a beginner or a professional trader. You have to learn how best you can identify the best forex time frame. Generally, these are some of the things you need to consider when identifying a time frame for forex trading:
  • A time frame that is mostly used in identifying trade setups
  • The time available to trade daily
For instance, if you choose to analyze the forex market utilizing daily charts but remain able to spare an hour daily analyzing charts, you will be better off utilizing daily time frames and considering using a four0hour chart to spot an entry trigger.

However, if you have a lot of time to do your analysis, it would be wise to use smaller time frames and seize opportunities as soon as they arise.

What multi-timeframe analysis techniques can day traders use?

Day trading stocks means that you have the entire day to monitor your charts closely. Thus, you have the chance to day trade your stocks even with very small time frames. It could be one minute up to 15-minute. Sometimes it could even be one-hour frames.

As a day trader, you need to identify the trends in the one-hour time frame because. Then, you can zoom in on the 15-minute frame to enable you to spot the best market entries.

Essentially, you use the one-hour chart for the trend time frame and the 15-minute chart for an entry time frame.

If you discover that the price trades above 200 MA and tends to shift most of the time upwards. Use the one-hour forex chart to help you establish the price trend.

On the other hand, a 15-minute chart would be great for enabling you to look at price movements more closely, especially on a lower time frame. Furthermore, the uptrend is also probable on this chart, confirming an upward bias. 

The chart has two black arrows that depict the contracting Bollinger band. In most cases, this is an indication of increased volatility. As a trader, An opportune time to enter a long position at a time when the price finds its way to the upper band. 

Also, you can choose to use the lower band or the 20-day MA as a dynamic stop.

Techniques for Swing traders

Most swing traders don’t have enough time to monitor charts as day traders do. In most cases, they get up to an hour or less. Therefore, it would only make sense for anyone swing trading to use the daily chart to get an overall trend. 

Afterwards, they will zoom in using the four-hour chart to identify the spot entries.

For example, the daily time frame for a pair like EUR/GBP would be ideal for letting traders spot a downtrend. However, if you follow it up with zooming in on the four-hour frame would come in handy in spotting the best entry point into the market.

This is because the four-hour chart is the best way to decipher the short signals.

If the price trades below the 200-day SMA and comes back within range, you can regard this as a bearish crossover when the 20 MA crosses just under the 50 MA. This would provide an entry trigger.

Some pro tips you can consider when using multiple time frame analysis

For you to precise execute your trades using this analysis, here are some pro tips you can keep in mind.
  • Ensure that you always come up with short and long trade scenarios as you go on with your analysis. This is fantastic to stay open-minded. Thus, you steer clear of one-dimensional thinking. If you spend all your time searching for short trades, you will probably miss a long trade signal and vice versa.
  • You should be able to separate your charts from your trading platform. This is because seeing your open orders on the screen will most likely cause a trading bias during your analysis.
  • Sometimes, it may not only be the top-down approach. Be open-minded by staying on your execution time frame and zooming out. Doing this might help you see things broadly, thus, easily identifying the context of your chart.

Wrap up

Even as you consider using a multi-timeframe analysis approach to enable you to stay profitable with your trades, always ensure that you utilize at least two-time frames but use more than three. Using more than three-time frames will only make things more confusing for you, and you might end up experiencing analysis paralysis

The truth is, there might not be a way to do your analysis, but it is about finding the technique that works for you and understanding the differences and nuances of time-frames.

If you want to learn more about this or want access to some of the best signals, be sure to visit Xosignals.
Forex trading

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