Secret of Multiple Time-Frame Analysis Techniques (1)
In recent times there have been many questions from traders regarding the “multiple time-frame analysis” method in forex trading . Indeed, we have always directed to study single time frame frames first, especially for beginner traders. It’s nothing, just because we are worried that a short explanation for multiple time-frame analysis will actually make you more confused. Evidently there are those who mix H1 (hourly) chart readings with M5 (5 minutes) with forced logic. Ah, never mind … don’t talk about it here. Later even more dizzy.
However, the existence of the “multiple time-frame analysis” method cannot be denied. In fact it can help a trader to find strong support and resistance levels. When the questions arose even more in a row, I finally decided to write an article about the method. In this article, we will discuss what is multiple time-frame analysis , how to choose the right period and how to combine it.
Prepare your favorite hot tea and snacks. We will discuss this topic in two writings. This is the first part. Here we go .
Is there actually multiple time frame analysis ?
To make it easier to mention, let’s just short multiple time-frame analysis to MTFA. Okay? The problem is rather complicated also typing long terms over and over again.
MTFA involves several time-frames (hereafter we call TF ) for the same currency pair. Indeed there is no standard limit on how many time-frames can be used, but there is a kind of “guide” that you need to follow.
The use of three different time-frames is usually enough to provide a broad enough market outlook . If too little time-frame is used, then the information you will get is also lacking. Conversely, if it’s too much, the analysis tends to be “too far” so that it doesn’t fit your trading style.
Time-frame that is “medium”, or the middle one, must first be set as a benchmark for how long (on average) the transaction will be left open. Well, from there just stepped into a shorter TF, which must be at least a quarter of the middle time-frame.
So, if mid time-frame is H1 (hourly) aka 60 minutes, then the “short” time-frame must be M15 (15 minutes).
With the same calculation, the “long” time-frame must be at least four times greater than the “medium” time-frame. Now, because the time-frame medium is H1, then the “long” time-frame must be H4.
The rules mentioned above in MTFA are known as “rule number four”.
Now, for this example, now we have three time-frames, namely:
– M15, let’s call it short time-frame
– H1, we call it medium time-frame
– H4, we give long time-frame
It’s important to choose the right time-frame. A long-term trader who usually lets his position open for example – a month, should not use the combination of TF above. He might be better off using other combinations such as Daily (D1), Weekly (W1) and Monthly (MN). The combination in the example above is more appropriate for short-term traders or day traders .
After you equip yourself with the basis of setting time-frame in MTFA, now is the time to apply it in forex trading. With this method, it is generally better to start from a long-term time-frame (long time-frame). By observing TF long, you will be able to find the most dominant trend.
Now, to open a position, do not use time-frame long as a signal. time-frame long is only used to determine the general trend, so the position opened later must be in line with the trend seen in long time-frame. But that does not mean that you are not allowed to open a position that is opposite to the time-frame long trend, but you should always remember the concept of “the trend is your friend”. Of course a position that is contrary to the general trend will have a lower chance of success than a position in line with the general trend.
On TF Medium, you will be able to see the movements of the movement more clearly than in TF Long. It is on TF Medium that you can later determine about when to open a position. The instructions on this Medium time-frame will be detailed in the lower TF, Short time-frame.
In the development of trading techniques, often on the Medium time-frame you will get early instructions regarding the possibility of reversal.
Now, on TF, you will have to find an entry signal (buy or sell). This is because the fluctuations that occur can be seen more clearly so that a trader will be able to take a better entry level . But remember that the signal that appears on this TF must be in line with the trend shown in the larger time-frame.
In the second part, you will learn how to implement this MTFA. How to combine it, how to read it and make decisions.