Using multiple time frames, traders can determine the longer-term trend and identify ideal entry points on a smaller time frame chart by performing time frame analysis in sequence. After selecting the time frames to study, technical analysis on those time frames may then be performed to confirm or deny their trading edge.
WHAT IS MULTIPLE TIME FRAME ANALYSIS?
The process of viewing the same currency pair over different time frames is known as multi-time frame analysis. In this process, the larger time frame is used to establish a longer-term trend, while the shorter time frame is used to spot ideal entries into the market.
The 1:4 or 1:6 ratio is a good rule of thumb when switching between time frames. By focusing on bigger time frames, we are able to locate the smaller, more intricate price movements. Moreover, small time frames are not very useful since most of the price movement has little bearing on the total trade and can result in unnecessary stress when the market seems to be moving fast.
When viewing the trend on an hourly chart, for instance, traders may zoom into the 10-minute chart (1:6) or 15-minute chart (1:4) for ideal entries. The 10 or 15-minute chart reflects short-term developments and the hourly chart is where trade progress can be monitored going forward.
WHAT IS THE BEST FOREX TIME FRAME?
Many forex traders, new and veteran, want to know how to identify the best forex time frame. In general, forex traders should pick a time frame that matches the following:
– the number of trading hours per day
– the most commonly used trade setup identifying timeframe is most often used
For example, if an individual only had one hour a day to spend analyzing forex charts and wanted to use a four-hour chart for a sell trigger, they would be better off using the daily time frame for analysis and a smaller time frame for entry. Individuals with more time to spend on the market can use much smaller time frames for analysis and entry because they can react more quickly to market opportunities.
Time frames of different traders on the general table:
| TRADER STYLE | HOLDING PERIOD | TREND CHART | ENTRY CHART |
|---|---|---|---|
| Long-term | 1 day + | Weekly | Daily |
| Swing-trader | Few hours – few days | Daily | 4-hour |
| Short-term | < 1 day | 4-hour | Hourly |
| Scalper | < few hours | hourly | 15-minute |
MULTIPLE TIME FRAME ANALYSIS TECHNIQUES FOR DAY TRADERS
Day traders often have the ability to look at charts for the entire day, therefore they may utilise really small time frames. They might use a one-minute, 15-minute, or one-hour time frame. When identifying market entry points on the 15-minute time frame, day traders on the one-hour time frame can zoom into the minute time frame to spot ideal trade setups.
Trend time frame: One-hour chart
Entry time frame: 15-minute chart
On the one-hour chart, you can see that price is trading near the 200MA and is rising. Therefore, there is a long trading bias. You can then look at the 15-minute chart to spot good entry points. You can look at the four-hour chart to spot good entry points.
EUR/GBP one-hour chart exhibiting an upward bias
On the 15-minute chart, day traders can look at how price is moving on a lower time scale to get a better idea of how it’s doing. The upward trend is also displayed on the 15-minute chart, indicating an upward slope. The black arrows point to the contracting Bollinger band, which signals an increase in volatility. If price breaks through the upper Bollinger band and approaches the 20-day moving average or lower Bollinger band, then traders can enter the long position.
EUR/GBP 15-minute chart showing ideal entry into the market
SWING TRADING MULTIPLE TIME FRAME ANALYSIS TECHNIQUES
Swing traders spend less time monitoring charts than day traders – perhaps one hour or less. Therefore, they look to the daily chart for the broad trend and then zoom in to the four-hour chart to spot entries.
Trend time frame: Daily chart
Entry time frame: Four-Hour chart
How can traders spot the downtrend in the Daily timeframe on EUR/GBP? Investigating the four-hour time frame provides better answers.
EUR/GBP Daily chart exhibiting downward trend
Looking at the four-hour chart, traders may look for signals. The upper and lower channel lines have been blurred to make the chart clean. After a breakout fails, price falls back within the trading range. A failed move up creates additional conviction for the short trade.
The 200-day SMA is above price and when it reenters the trading range there is a bearish crossover as the 20 MA (green line) crosses below the 50 MA (blue line), providing the entry trigger.
EUR/GBP Four-hour chart filtering trades in favor of short positions
