What is multiple time frame analysis?
Chill out young padawan, it is not as complicated as it sounds!
Now’s not the time to get senioritis, although you probably got that way back in grade 12. Ha!
Multiple time frame analysis is simply looking at the same pair and the same price but in different time frames.
Remember, a pair exists on several time frames – the daily, the hourly, the 15-minute, heck, even the 1-minute!
When you use a chart, you’ll notice that different time frames are being provided.
Chart Time Frames
The current chart above is the “1 day” or daily time frame.
When you click on the “1 hour”, it will bring out the 1-hour chart. If you click on “5 minutes”, it will bring out the 5-minute chart and so on.
There is a reason why chart apps offer so many time frames. It’s because there are different market participants in the market.
This means that different forex traders can have different opinions on how a pair is trading and both can be completely correct.
Some will be traders who will focus on 10-minute charts while others will focus on the weekly charts.
John may see that EUR/USD is on a downtrend on the 4-hour chart.
However, Jane trades on the 5-minute chart and sees that the pair just ranges up and down. And they could both be correct!
As you can see, this poses a problem.
Trades sometimes get confused when they look at the 4-hour, see that a sell signal, then hop on the 1-hour and see the price slowly moving up.
What are you supposed to do?
A. Stick with the one-time frame, take the signal, and completely ignore the other time frame.
B. Flip a coin to decide whether you should buy or sell.
Both options are terrible.
Benefits
So what are the benefits of looking at multiple time frames?
- They give you different perspectives and views of a currency pair.
- They enable you to spot upcoming support or resistance areas.
- They enable you to spot trend changes earlier.
- They help you to enter or exit a trade as early as possible.
- They help to confirm the trend change in a higher time frame.
- They allow you to know what other market participants are thinking.
- They enable you to see the small picture, the medium picture, and the big picture.
Luckily for you, we here at BabyPips.com aren’t about to let you graduate without knowing how to use multiple time frame analyses to your advantage.
First, we’ll try to help you determine which time frame you should focus on.
Each forex trader should trade a specific time frame that fits his or her personality (more on this later).
Secondly, we’ll also teach you how to look at different time frames of the same currency pair to help you make better, more educated trading decisions.
