Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Learning to Trade Currencies Using Multiple Time Frame Analysis

InvestorEducation / Forex Trading Jun 11, 2012 - 08:00 AM GMT

By: Submissions

InvestorEducation

Best Financial Markets Analysis ArticleAdam Green writes:What is multiple time frame trade analysis? This is the practice of using multiple time frames to determine the trend of a currency asset so as to determine the possible points of trade entry in tandem with the direction of the trend. This trade investment strategy was designed to solve the problem of traders getting into trades that are against the trend as a result of conducting analysis only on short term time charts.


It is conventional practice to use three time frames when performing multiple time frame analysis. These time frames are the 15 minute, hourly and 4-hourly charts, although some authorities may replace the 4hourly chart with the daily time chart, which is generally regarded as the standard chart for trend determination.

The principle behind the use of multiple time frame trade analysis is to use the longest time frame chart to determine the trend of the currency asset, use the medium term chart to pick an area where the price action of the currency asset corresponds with the trend of the long term chart, and then use the short term chart to search for a trade setup that satisfies conditions for a trade entry when the conditions for the hourly and daily chart setups are in tandem with each other.

With these points in mind, let us use an example to analyse how to perform a multiple time frame analysis.

Step 1

In this example, we shall be conducting a multiple time frame analysis for gold/USD. Many brokers now offer Gold/USD (XAU/USD) as a standard traded instrument, so whatever is discussed here will also work for any other currency pair traded. The first step involves analysis of the long-term chart to determine the trend. If we look at the daily chart below, it shows that gold/USD has been in a clear downtrend.

Daily chart (XAU/USD)

Step 2

Here, we look at the price behaviour in the hourly chart, which should mirror the trend on the long term chart. On this chart, we are looking for a region where the price action of traders mirrors what is about to occur in the market. We see this on the right hand side of the chart below as the price action has changed from a retracement rally to a period of consolidation, which signifies that those traders driving a retracement rally have stepped out of their positions.

In this hourly chart, we see an area of consolidation which followed the area of price rally. This price rally is actually the retracement from the downtrend we see on the daily chart. Notice within this area of consolidation that a symmetrical triangle has formed, which shows that the price action can go either way. But given that the predominant trend for gold at this time is a downtrend, and that the retracement has stalled at the 38.2% Fibonacci retracement point, THE BIAS FOR THIS TRADE IS TO GO SHORT.

Step 3

In this step, we look to our trade execution chart, the 15 minute chart. Our sole purpose on this chart is to look for possible areas where we can confidently pull the trigger on a short trade. One way to determine this is to look for a bearish candlestick pattern, and we eventually got this as seen below:

15 minute chart (XAU/USD)

We can see an evening Doji star formation which is a clear bearish confirmation. The move eventually went in a short direction by almost 4,000 pips.

This trade analysis goes to show the importance of multiple time frame analysis in financial trading. To recap this lesson:

  1. Use the daily chart to determine the trend of the currency. Apply the Fibonacci retracement tool from the highest candlestick point to the lowest candlestick point on the chart.
  2. Next, crossover to the hourly chart to see if a region has emerged where the price action corresponds to the trend on the daily chart.
  3. Look at the 15 minute chart to see areas at which you can execute the trade once the conditions on the daily and hourly charts are in agreement.

You cannot go wrong with multiple time frame trade analysis.

About the Author

This article was provided by Adam Green who runs www.BinaryOptions.net and has over 10 years experience trading in the currency, options and spread betting markets.

© 2012 Copyright Adam Green- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in