Multiple Time Frame Analysis, How to Use Multiple Time Frame in Forex, What Time Frame Should You Trade?

How To Trade Numerous Time Frames In Forex?

Multiple time frames, as it is said, do not mark as a complicated concept in Forex. No matter how hard it sounds, it is much easier to understand and implement. If explained in simple words, multiple time frame analysis marks as the course of looking at the same currency pair as well as the same price; however, this is done on multiple time frames.

Don’t forget that a pair exists on numerous time frames, such as the daily, the 15-minute, the hourly, or even the 1-minute. It means that it is possible for different forex traders to have their distinct opinions on how a currency pair is trading. And for good, opinions of both these different traders can be correct.

John may note that the EUR/USD pair is bearish on the 4-hour chart. However, Jane concludes that the pair is showing uptrend based on independent analysis on the 5-minute chart. And, the irony is that both John and Jane can be correct.

Such a scenario can result in a problem. Traders get confused when they analyze the 4-hour chart and find a sell signal, but when then look at the 1-hour chart, they note price gradually moving up. If you have also faced the same problem, then we have got the solution for you. No, you cannot just flip the coin and decide which trade to take; you have to learn to use multiple time frame study to your benefit. A forex trader can focus on a specific time frame as per their convenience. Then they should analyze different time frames to make better-informed decisions.

What Time Frame Should I Trade?

Understanding Which Time Frame to Trade

Newbie forex traders find it extremely tough to make right trade decisions as most of the time they are trading the wrong time frame, which is quite different from their personality. They intend to get rich in no time, hence always look for small time frames such as the 5-minute or 1-minute charts. Soon, they are covered by disappointments when they trade because things don’t work as they would have expected.

Some forex traders prefer to use 1-hour charts for making their trade decisions. This time frame is comparatively longer than the 5-minute time frame, but still not long enough to get enough trade signals. Trading as per this time frame provides more time to study the market. Then some people would never take trades based on a 1-hour time frame. So, how to decide which time frame is best for you? It all depends on a trader’s personality. Traders should feel at ease with the time frame they are trading in. Else they will always struggle with a sense of frustration or some kind of pressure when their trades are open. And it’s very much natural because trades are all about real money.

Traders should understand that the real reason behind the pressure they are facing is not the pace of the things; instead, it is not sticking to a one-time frame and changing the trades very soon. New traders should give a try to all time frames until they find the time frame they are comfortable with.

What Time Frame Is Best for Trading?

Best Time Frame For Trading

As we have discussed earlier, the time frame that is best for one trader can be a blunder for another trader. You can find which time frame is best for you only by doing some trial and error. And moreover, it has to suit your personality type. Some prefer to take things slowly, while some look for fast-paced action.

List of the basic time frames:

Long-term

This type of traders refers to weekly and daily charts. The weekly charts provide a longer-term perspective and help in putting trades in the shorter term. Trades may carry on from a few weeks to several months and maybe years. They don’t have to look for daily price movements. Traders can thoroughly think about the trade and then take the decision.

In such trades, swings are usually large and hence need patience. A bigger account is required to benefit from longer-term swings. Sometimes traders may see frequent losing months.

Short-term

Short-term traders refer to hourly time frames. They hold trades for many hours to a week. There exist more opportunities for trades, and as a result, less dependency on one or two trades to make money. Although transaction costs are higher and overnight risk always remains.

Intraday

In this kind of trade, traders refer to minute charts. Trades are closed on the same day when they are taken before the market close. There are ample trading opportunities and no overnight risk. Transaction costs are higher, and profits are limited as trades have to be closed by the end of the day.

Why You Should Look at Multiple Time Frames When Trading Forex

Why Should Forex Trader Consider Multiple Time Frames?

Before even you consider the way to perform multiple time frame analysis, it is important to know why you should even consider multiple time frames. Eventually, it is not that tough to analyze multiple charts as a forex trader. There are several indicators set and even focus kept on economic news.

Let us consider something ‘Long or Short’ to understand why there is a need to pay attention to analyze different time frames. Analyze the below 10-minute chart of GBP/USD. You can see the 200 SMA, which seems to be working as resistance. With the price at resistance and Doji on charts, it looks like a short sell.

But then see what happens. The pair witnessed positive momentum and closed above the resistance level.

Let us analyze the 1-hour chart to check what happened. On the 1-hour chart, it was clear that the pair was at the bottom of the bullish pattern – Ascending Channel. Also, a doji was formed on the support line, which was a clear buy indication.

To see a clearer ascending channel, let us check out the 4-hour chart.

Anyone who must have this chart earlier must not have thought of taking a short position. All the charts displayed the same price data, but the only difference was of time frames. These charts clearly show the significance of analyzing multiple time frames.

By seeing just the 15-minute charts, it could have never been clear why the pair suddenly moved up the resistance level. Thus, it is essential to keep an eye at a larger time frame to understand what is happening.

How to Use Multiple Time Frame Analysis to Find Better Entry and Exit Points

How To Apply Multiple Time Frame Analysis?

A trend that exists on a longer time frame gets more time to advance, which indicate that it will show a bigger price move for pair to alter course. Also, resistance and support levels are more noteworthy on longer time frames.

What you have to do is first select your preferred time frame and then move to the subsequent higher time frame. Then you can decide to be bearish or bullish on pair depending on whether the market is trending or ranging. In the next step, return to your lower time frame to find out levels, that is where to book profits and where to place stop. This marks as one of the best applications of multiple time frame analysis. Know the better exit and entry points.

By focusing on the time in your analysis, you get the upper hand over the other traders who look at the one-time frame. Let say Cinderella wants to trade forex. Post some demo trading she concludes that she prefers trading the EUR/USD pair. Also, she realizes that she is most comfortable trading based on the 1-hour chart reading. She thinks that the 4-hour charts are too long and 15-minute charts are extremely fast.

Cinderella pulls the 4-hour chart to understand the overall trend. This makes her decide that she will only be looking to buy indications. She doesn’t want to trade against the trend. Now she comes back to her lower time frame of 1-hour to get an entry point. She lists the stochastic indicator on the chart and concludes that the stochastic has moved out of the oversold zone.

Trading With Three Time Frames

How To Trade With Three Time Frames?

Using three-time frames gives a trader the most flexibility, as they are in a position to understand short, medium, and long term trends. First of all, it is important to determine the long term trend. This gives the trader a clearer picture of as to what is the mood of the market and where it is trending. For instance, EUR/USD is conveniently trading above the 200 days SMA on the daily chart. It indicates that the pair is in an uptrend.

The next step is to understand the current market bias. You can refer to the time frame that you will use normally. This one is used to understand the medium-term mood of the market.

The chart below focuses on the 4-hour time frame. It shows that EUR/USD remains to trade with a bullish bias.

In the third step, you determine exit and entry points. This is achieved by focusing on the smallest time frame.

You can apply any time frame combination as you like. The only thing that you have to consider while doing so is that there should be ample time difference between these time frames; else you won’t be able to note the difference in their movement.

Traders can use the following combinations:

• 30-minute, 5-minute, and 1-minute
• 4-hour, 30-minutes, and 5-minute
• 4-hour, 1-hour, and 15-minute
• Daily, 4-hour, and 1-hour and so on

While deciding on how much time should be there in between charts, ensure there is ample difference between the three-time frames. If they are extremely close, you will fail to gauge the difference, making the multiple time frames analysis completely useless.

Conclusion: Multiple Time Frame Analysis

Multiple Time Frame Analysis

You should consider adding multiple time frame analysis into your forex trading arsenal. The use of multiple time frame analysis comes in handy as it allows you to get a good view of your trading.

Choosing a suitable time frame

When using multiple time frame analysis, there some tips that you should take into consideration. To begin with, you should decide which is the appropriate time frame for you. To achieve this, you have to continuously try out different time frames in various market setups and always record the outcomes.

After establishing your ideal time frame, you can as well consider the subsequent higher time frame. Then after that, try to develop a strategic decision on whether you are going to short or long depending on the direction of the trend. The addition of the element-time to a trader’s analysis helps in giving one an edge over other forex traders that prefer trading in a one-time frame only.

Consider multiple time frames when trading

Besides choosing a preferable time frame, you should make it a habit of looking at multiple time frames whenever you are trading. This is achievable through continuous practice to avoid being stuck in the process of trading, unaware where to get the time frame button.  Ensure that you are up to speed and can quickly change between time frames.

To make it even easier, consider practicing with a chart having multiple time frames up at a go.  The secret is to choose the time frames that you are interested in and concentrate on them.  Make sure you gain knowledge as much as possible about market movements during your preferred time frames.

Avoid too many time frames

You should be cautious and avoid looking at a lot of time frames as this is likely to overload you with so much information that can explode your brain. You might end up becoming messy because there is so much information to digest. It is advisable to stick to between two and three-time frames because any additions will likely kill you.

The use of multiple time frames eliminates the contradictions that might be there between time frames and indicators.