Most traders find themselves analyzing a currency pair for trading purposes on a single time frame. While that is all well and good, a much more in depth analysis can be accomplished by consulting several time frames on the same pair. You will have more insight regarding both the person and the trade if you view them from more than one vantage point. Ideally a trader will want to postpone their entry until momentum in each time frame is aligned…all bullish for an uptrend or all bearish for a downtrend.
The entire process regarding trading in general and Multiple Timeframe Analysis MTFA specifically begins by identifying the trend the direction in which the market has been moving the currency pair in question over time.
For our purposes here, the trend can be identified on the Daily chart. The pair has been trading above the SMA green line and pulling away from it. Price has also been building higher highs and higher lows, and, at the time of this chart the GBP is strong and USD is weak. Also, when we look at Slow Stochastics , we can see that the indicator is giving us a very bullish look in that the two moving averages which comprise Stochastics are at a strong upward angle and the separation between them is increasing meaning momentum is becoming stronger.
All this adds up to bullish upside momentum. This means that we only want to buy the pair when each time frame is reflecting that same bullish momentum. In looking at the 4 hour chart we see that the uptrend is present here as well after a mild retracement. Stochastics reflects the pullback that took place but is still poised to crossover to the upside should bullish momentum ensue. The one hour chart provides us with our optimum entry signal. Notice how Stochastics has retraced, moved below 20 and then crossed over to the upside and continued to move above the 20 line.
That crossover in the red circle would be our entry signal since that is the point when bullish momentum kicks back in on the one hour chart. When that bullish crossover takes place, the one hour time frame is now aligned with both the four hour and the Daily chart. They are all moving in the same direction at the same time and our Multiple Time Frame Analysis objective is accomplished. To implement Multiple Time Frame Analysis, after we establish the trend, we want to check a couple of lower time frame charts and not enter the trade until they are in agreement with the longer time frame chart that we used to establish the trend.
Once they are all in agreement, we enter the trade. It is like aligning the tumblers in a lock. Once that is accomplished, the lock will open freely. The Time Frames of Trading 59 of Discover Multiple Time Frame Analysis. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. Foundations of Technical Analysis: Classic Chart Patterns, Part I.
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