Multiple Time Frame Analysis - Multiple Time-frame Analysis
Multiple time frames analysis in forex equals using 2 chart time-frames to trade forex currencies - a shorter chart timeframe is used for trading & a longer chart timeframe is used to check the trend direction.
Since it is always good to follow the trend, in Multiple Chart Time-frame Analysis, the longer chart time-frame gives us the direction of the longterm trend.
If the long term market trend direction supports the direction of smaller chart time frame then the probability of being profitable is greatly increased. This is because even if you make a mistake when opening your trade the long term trend will eventually save you. Also if you trade with direction of the price trend, then mostly likely you will be on the winning side, this is what this multiple chart timeframe analysis is all about.
Remember there a popular saying by many Forex and stock market investors that says: "The trend is your best friend' - never go against the market trend.
There are 4 different types of traders - all these different types of traders use different charts to trade as illustrated below.
Examples of how each type of trader uses multiple Timeframes analysis strategy:
Scalpers
This group of traders holds on to their trades only for a few minutes. The scalper never holds on to a FX trade for more than 10 minutes. With goal of earning small sums of pips as a profit, 5 - 20 pips.
A Scalper using 1 minutes chart timeframe wants to open long, checks 5 minute trading chart, which resembles the one below, since 5 min show trend is heading up, the scalper then decides from this multiple timeframe analysis it's okay to buy.
Day Traders
This group of traders holds onto their trades transactions for a period of few hours but not more than a day. With the main objective to earn quite a number of pips, 30 - 100 pips.
Day trader 15 minute chart timeframe wants to go long, checks 1 hour chart, which resembles the one below, since 1 hour shows the market trend is heading up, the day trader then decides from this multiple chart timeframe analysis it's okay to buy
Swing Traders
This group of traders holds onto their trades transactions for a period of few days to a week. With the main objective to earn a large number of pips, 100 - 400 pips.
A Swing trader using 1 hour chart timeframe wants to open short, checks 4 hour chart, which resembles the example below, since 4 hour chart shows the market trend is heading down, the swing trader then decides from this multiple timeframe chart analysis it's okay to sell.
Position traders
These group of traders are the investors that hold on to their trades for weeks or months. With main objective to make a big number of pips, 300 - 1000 pips.
Position trader using the daily chart time frame wants to short, checks the weekly chart, weekly chart looks like the one below, since weekly chart shows the trend is going downwards, the position trader then decides from this multiple timeframe analysis it's okay to sell.
How to Define a Trend - How to Define a Trend Using a Strategy
One can use a system that has Three indicators - MA Crossover System, RSI & MACD indicator and use simple rules for these indicator to define the trend. The rules of the system used to define a trend are:
Upwards Trend
Both Moving Averages Moving Up
RSI Indicator above 50 Mark
MACD Above Center-Line
Downwards Trend
Both Moving Averages Moving Down
RSI Indicator below 50 Mark
MACD Below Center-Line
For More explanation about this trade system read: How Do I Generate Signals with a System Tutorial Discussed.
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