Multiple Time Frame Analysis
You have to remember, a trend on a longer time frame has had more time to develop, which means that it will take a bigger market move for the pair to change course.
Also, support and resistance levels are more significant on longer time frames.
Start off by selecting your preferred time frame and then go up to the next higher time frame.
There you can make a strategic decision to go long or short based on whether the market is ranging or trending.
You would then return to your preferred time frame (or even lower!) to make tactical decisions about where to enter and exit (place stop and profit target).
Just so you know, this is probably one of the best uses of multiple time frame analysis…you can zoom in to help you find better entry and exit points.
There is obviously a limit to how many time frames you can study. You don’t want a screen full of charts telling you different things.
Use at least TWO, but not more than THREE time frames.
Adding more will just confuse you and you’ll suffer from analysis paralysis, then proceed to go crazy.
At the end of the day, it really is all about finding what works best for you.
Trading With Three Time Frames
Determine Main Trend
The largest time frame we consider our main trend – this shows us the big picture of the pair we wanna trade.
For example, on the daily chart, EUR/USD is trading above the 200 SMA which tells you that the main trend is UP.
Determine Current Market Bias
The next time frame down is what we normally look at, and it signals to us the medium-term buy or selling.
Here is a 4-hour chart and it’s clear that EUR/USD continues to have a bullish trend.
Determine Entry and Exit
The smallest time frame shows the short term trend and helps us find really good entry and exit points
Multiple Time Frame Combinations
You can use any time frame you like as long as there is enough time difference between them to see a difference in their movement.
You might use:
- 1-minute, 5-minute, and 30-minute
- 5-minute, 30-minute, and 4-hour
- 15-minute, 1-hour, and 4-hour
- 1-hour, 4-hour, and daily
- 4-hour, daily, and weekly and so on.
When you’re trying to decide how much time in between charts, just make sure there is enough difference for the smaller time frame to move back and forth without every move reflecting in the larger time frame.
If the time frames are too close, you won’t be able to tell the difference, which would be pretty useless.