Forex multiple time frame analysis
Disclaimer: Note, The contents of this website are for personal research purposes only. They are not intended to be investment advice or a recommendation to buy or sell any security. You should consult with a financial professional before making any investment decisions.
In forex trading, multiple time frame analysis has shown that the movement of the price of an asset is best known by studying different time frames on the chart.
What are these time frames on the forex chart?
These are the timely representation of each candlestick on the monthly, weekly, daily, 4-hour, 1-hour, 30-minutes, 15-minutes, 5-minutes, and 1-minute charts of the forex market as can be seen on both MT4 and MT5 trading apps.
The purpose of this article is to discuss multiple time frame analyses for day trading.
Multiple time frame analysis for day trading is significant because we have more day traders than any other style of trading most especially for forex traders in Nigeria.
The top 10 forex traders in Nigeria are day traders!
Contents
What is Multiple Time Frame Analysis?
The study of a currency pair across different time frames on the forex chart is known as multiple time frame analysis.
However, there is no best way to go about this multiple time frame trading strategies. The multiple time frame trading strategies to be discussed here have been proved to generate a 90% winning rate.
Typically, using multiple trading 3-time frames works best as a strategy.
Types of Multiple Time Frames in Forex
These are the 3-time periods used for multiple time frame analysis:
- Higher Time Frame
- Medium Time Frame
- Lower Time Frame
For day trading, a day trader must look out for the previous highs and lows or the supply and demand zones of the previous day’s candle formation.
This will provide a summary of the market price for the previous days and/or weeks. As a general rule, a trader should first look at the weekly chart as well to gain a better understanding of market trends.
This multiple time frame trading strategy will assist you in deciding where to enter and exit trading positions.
Multiple Time Frame Analysis Price Action from the Top-Down
The higher time frame to be considered for day trading is the 4-hour time frame.
The best policy adapted to this trading strategy is to start off reading charts in the 4-hour time frame.
This time frame has enough details for market formation, also the dominant trend is established in this time frame.
Trading positions are not initiated during this time frame but this is only used to determine the trend of the market. Taking trades against this trend will only prove a lower degree of success.
Next, the medium time frame
The medium time frame to be used is the 1-hour charts.
This is the most adaptable time frame to be considered because every small and big move in the market price is conspicuous.
Trades are better planned in this time frame and the holding positions are also determined.
Finally, the lower time frame is for determining your entry positions. As this also can be used to determine the exit of a trade.
Smaller fluctuations in the market price are easily noticed and this, in turn, helps with early entries and exits of trades.
With Multiple Time Frame Analysis, Using a Trendline to Better Plan Trades
Trendlines are best drawn on the 4-hour and 1-hour time frames for day trading. In the previous article, I explained how best to draw trendlines.
A multiple time frame analysis indicator that can also be used is the 20-EMA.
Trading 3-time frames are best advised but trading 2-time frames can also be tested (backtesting and forward testing).
Draw a trendline on the 4-hour chart to determine the trend of the market, and look out for price action on the 1-hour chart as price bounces off the trendline to help determine the strength of the trend.
Trades can be entered on the 15-minutes chart because price continuation or rejection would be more obvious around this trendline. From the picture below you will see the usage of both stochastic and RSI indicators.
Conclusion
Forex multiple time frame analysis is a trading strategy used by experts to increase their high probability of trading success.
I always advise using my strategies on a demo account where you can forward test the strategy before using it for your day-to-day trading on the real account.
I would like to hear from you soon.
Disclaimer: Note, The contents of this website are for personal research purposes only. They are not intended to be investment advice or a recommendation to buy or sell any security. You should consult with a financial professional before making any investment decisions.
