Multiple time frame analysis is the process of viewing the same currency asset across different time frames on a chart.
Multiple time frame analysis follows a top-down approach when trading and allows traders to gauge the longer-term trend while finding ideal entries on a chart with a shorter time frame.
Using multiple time frame analysis can improve the odds of success for a trade.
Traders who use multiple time frame analysis subscribed to the Dow Theory.
Charles H. Dow argued that price movement unfolds in three ways:
- Primary trend
- Secondary reactions
- Minor trends
He likened these market price movements to major ocean tides, waves, and ripples.
According to the Dow Theory:
- Primary trends can last several years or more.
- Secondary trends, or reactions, can last from several weeks to several months.
- Ripples, or short-term minor trends, can last from several days to several weeks.
How can traders apply this multiple time frame trading methodology to their trading?
When looking at charts, consider using multiple time frames to decide when you confirm a trend and choose positions when the trends align.
- Start with a top-down approach by looking at a weekly chart to determine the market tide or primary trend.
- A daily chart can be used to determine potential secondary market reactions, which are counter-trend corrections.
- Minor trends can be seen on hourly charts
How to Trade Multiple Time Frames
To look for primary trends, you could start by looking at a weekly chart.
If you identify a major upward trend on that weekly chart, it’ll be easier to spot a shorter-term trend on a daily or even shorter time frame chart.
Starting with the longer-term chart first and then confirming that all trends align is more logical when it comes to considering trading decisions.
How can you incorporate looking at different time frames into your trading routine?
One way is to apply technical analysis using multiple time frames.
For example, if you use moving averages, do all moving average indicate an uptrend across ltiple time frames?
If you’re just looking at a 15-minute chart and see an uptrend, it’s difficult to figure out if this uptrend is happening within a larger uptrend or downtrend.
Short-term trends are part of a larger trend, and it’s a good idea to trade in the direction of the primary trend.
It’s better to start with weekly time frame charts to confirm the big-picture trend before moving to a shorter-term chart.
Trading with multiple time frames shouldn’t necessarily change your strategy.
You’re simply using more information so your trading decisions aren’t made in the dark.
Ask yourself, “What trends am I riding?”
The more aware you are of trend direction, the better you will be at making your entry and exit decisions.