Multiple Time-Frame Analysis
Multiple time frames analysis equals using 2 chart time frames to trade Forex currencies - a shorter one used for trading and a longer one to check the Forex trend.
Since it is always good to follow the trend, inMultiple Time Frame Analysis, the longer time frame gives us the direction of the long-term trend.
If the long-term market direction supports the direction of the smaller chart time frame then the probability of being profitable is greatly increased. This is because even if you make a mistake the long-term trend will eventually save you. Also if you trade with the direction of the market, then mostly you will be on the winning side, this is what this 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.
There are four different types of Forex traders - all these use different charts to trade as explained below.
Examples of how each type of trader uses multiple time frames analysis strategy:
This group holds on to their trades for only a few minutes. The scalper never holds on to a 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 chart, which looks like the one below, since 5 min show trend is going up, then decides from thisanalysis its okay to buy.
This group 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 chart wants to go long, checks 1 hour chart, which looks like the one below, since 1 hour shows market trend is going up, then decides from thisanalysis its okay to buy
This group 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 chart wants to go short, checks 4 hour chart, which looks like the example below, since 4 hour shows the trend is going down, then decides from thisanalysis its okay to sell.
These are the investors that hold on to their trades for weeks or months. With the objective of making a large number of pips, 300 - 1000 pips.
Position trader using the daily chart wants to go short, checks weekly chart, weekly looks like the one below, since weekly shows the trend is going down, then decides from thisanalysis its okay to sell.
How To Define A Trend
Using a trading system has 3 indicators - MA Crossover System, RSI and MACD and uses simple rules to define the trend. The rules are:
Both MAs Moving Up
RSI above 50
MACD Above Centerline
Both MAs Moving Down
RSI below 50
MACD Below Centerline
For More explanation about this system read: How To Generate Trading Signals With a Forex System.