Trading Multiple Time Frames

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Trading Multiple Time Frames

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Trading Multiple Time Frames

Multiple time-frame analysis involves monitoring the same currency pair across different frequencies (or time compressions).

Typically, using three different periods gives a broad enough reading on the market.

A medium-term period should first be determined and it should represent a standard as to how long the average trade is held. From there, a shorter term time frame should be chosen and it should be at least one-fourth the intermediate period (for example, a 15-minute chart for the short-term time frame and 60-minute chart for the medium or intermediate time frame). Through the same calculation, the long-term time frame should be at least four times greater than the intermediate one (so, keeping with the previous example, the 240-minute, or four-hour, chart would round out the three time frequencies).  Trade should be in line with the long-term trend (long-term time frame)

Medium time frame: this level should be the most frequently followed chart when planning a trade while the trade is on and as the position nears either its profit target or stop loss

Short-Term Time Frame: Finally, trades should be executed on the short-term time frame. As the smaller fluctuations in price action become clearer, a trader is better able to pick an attractive entry for a position whose direction has already been defined by the higher frequency charts.

Applying this theory, the confidence level in a trade should be measured by how the time frames line up. For example, if the larger trend is to the upside but the medium- and short-term trends are heading lower, cautious shorts should be taken with reasonable profit targets and stops. Alternatively, a trader may wait until a bearish wave runs its course on the lower frequency charts and look to go long at a good level when the three time frames line up once again.