Multiple Time-Frame Analysis - Forex Trading Multiple Time Frame Analysis
Multiple time frames analysis in forex trading equals using 2 forex chart time frames to trade forex currencies - a shorter forex chart timeframe is used for trading and a longer forex chart timeframe is used to check the forex trend direction.
Since it is always good to follow the forex trend, in Multiple Time Frame Forex Analysis, the longer chart time frame gives us the direction of the long term forex trend.
If the long term market trend direction supports the direction of the smaller forex chart time frame then the probability of being profitable is greatly increased. This is because even if you make a mistake when opening your forex trade the long term forex trend will eventually save you. Also if you trade with the direction of the market trend, then mostly likely you will be on the winning side, this is what this multiple forex chart timeframe analysis is all about.
Remember there is a popular saying by many Forex and stock market investors that says; "The trend is your friend" - never go against the market trend.
There are four different types of Forex traders - all these different types of forex traders use different charts to trade as explained below.
Examples of how each type of trader uses multiple time frames analysis strategy:
This group of traders holds on to their trades for only a few minutes. The scalper never holds on to a forex trade for more than ten minutes. With the objective of making a small amount of pips, 5 - 20 pips.
A Scalper using 1 minute chart wants to go long, checks 5 minute forex chart, which looks like the one below, since 5 min show trend is going up, the forex scalper then decides from this multiple timeframe analysis it's okay to buy.
This group of forex traders holds on to their trades for a few hours but not more than a day. With the objective of making quite a number of pips, 30 - 100 pips.
Day trader trading 15 minute forex chart wants to go long, checks 1 hour forex trading chart, which looks like the one below, since 1 hour shows the market trend is going up, the forex day trader then decides from this multiple forex chart timeframe analysis it's okay to buy
This group of forex traders holds on to their trades for a few days to a week. With the objective of making a large number of pips, 100 - 400 pips.
Swing trader using 1 hour forex trading chart wants to go short, checks 4 hour forex chart, which looks like the example below, since 4 hour forex chart shows the market trend is going down, the forex swing trader then decides from this multiple timeframe chart analysis it's okay to sell.
These group of traders are the investors that hold on to their forex trades for weeks or months. With the objective of making a large number of pips, 300 - 1000 pips.
Position trader using the daily forex chart wants to go short, checks weekly forex trading chart, weekly forex chart looks like the one below, since weekly chart shows the forex trend is going downwards, the forex position trader then decides from this multiple timeframe analysis it's okay to sell.
How To Define a Trend - How to Define a Forex Trend Using a Forex Trading System
A forex trader can use a forex trading system that has 3 forex trading indicators - MA Crossover System, RSI and MACD forex indicator and use simple rules for these forex trading indicator to define the forex trend. The rules of the trading system used to define a forex trend are:
Upward Forex Trend
Both MAs Moving Up
RSI above 50
MACD Above Centerline
Downward Forex Trend
Both MAs Moving Down
RSI below 50
MACD Below Centerline
For More explanation about this forex trading system read: How To Generate Forex Trading Signals With a Forex System Tutorial Explained.