What Is Multiple Timeframe Analysis?
The concept is quite simple. Multiple timeframe analysis involves looking at the same pair across different periods. There aren't precise rules as to how many should be chosen or when someone has gone overboard. That said, there is a simple set of rules that anyone can follow to do a proper timeframe analysis.
The simplest way to do a proper analysis is to use three different periods. Using any less than that might result in obtaining a flawed result. Using more than three will improve the analysis, but it might be too confusing for starting traders or redundant in the information presented.
The periods are divided into short-term, medium-term, and long-term timeframes.
This one is represented by the shorters time possible on the trading chart based on the average length that this position is held. For example, if the average position of the USD/GBP position is held for 4 hours, then the short timeframe should be 1/16th of the total time. In this example, it would be 15 minutes.
The medium timeframe can be easily calculated once the short one has been established. The medium frame is calculated as 1/4th of the average length of the position. So, using the example above, the medium time should be set to 60 minutes. Since 1/4th of 240 is 60.
This the most straight forward of them all. It represents the full length of the position. Based on the example again, this one can be set to 240 minutes or 4 hours.
Putting it all together
Now that all the different timeframes have been established what is the next step? Well, that is a bit more complex.
The first thing to do is to select each period in inverse order. So, open the MT4 or whichever platform that you are using and select the long timeframe to see the historical move of the pair.
The reason why the long-term timeframes should be viewed first is simple: it is easier to spot trends that way. The smaller the timeframe, the more volatility will be present. But those variables are always smoothed by long-term lines. So, by starting with the smoothest line, it becomes clearer where the support and resistant bands are located.
After that is set, then it is time to add the medium timeframe. This one will showcase any significant points of inflexion in the forex pair. And that is important when deciding if the position should be closed sooner than expected or if it can be kept longer because the pair is in the middle of a bull rush.
Lastly, comes the short term. The granularity of this one gives traders a view of the best point of entry and exit. So, traders can maximize their profits.
Trading forex is with multiple timeframes involves a tad of math at first. But once the lines are set, the precision it gives grants any trader an invaluable edge when creating their strategy.
To help you analyze and trade with multiple timeframes we definitely recommend that you check out MTF Super Trend indicator, which can be found here:
Finally, be sure to also read our post about how to analyze multiple timeframes to confirm trading signals, found here:
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