The Two Time-Frame Approach to Trade Selection

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A Guide to MTFA: Multiple Time Frame Analysis in Forex Trading

Every professional currency trader knows that detailed analysis of the market is a guarantee of a productive trade and positive outcome. We also know that there are many approaches to take when it comes to trading on Forex: from various strategies to specific tools and techniques. Same goes for analysis. Depending on the trader’s personal style and previous experience they can choose a different analysis method that will fit them the best. You probably already heard about technical analysis and fundamental analysis. They are the two major categories that consist of many subcategories contributing to the matter. A great example of such subcategory is a technical analysis technique called Forex multiple time frame analysis (MTFA). This type of analytical approach is sometimes neglected by a large number of traders, but it can actually serve as a great supporting tool. Today we are going to discuss what is the multiple time frame analysis in Forex and how to master it to improve your trading experience.

What is Forex time frame analysis

You may already know the definition of time frames in trading from learning about different Forex technical analysis strategies. The time frame is simply a parameter you set in your trading platform to generate a chart that will reflect the situation at the market for your chosen currency pair. The timeframes can go anywhere from mere seconds to weeks and even months. Each type of a frame is used for a different purpose during market analysis. Now, once again depending on the strategy you adopt you might tend to stick with a specific time frame and overlook the big picture. For example, many day traders, swing traders and momentum traders usually focus their attention on short term frames. And while it can prove effective in most scenarios, this can also lead to missing out on promising opportunities that can be indicated from larger time frames. So this is where the multi timeframe analysis for Forex comes in.

The Forex multiple time frame analysis is the strategy that involves comparing the data from several time periods to build a more comprehensive and effective trading plan. By pulling the various time frame charts for the same currency pair the trader then needs to compare and structurize the information on trends, their directions and momentum. There is no specific guideline to how many frames you need to compare to get the best results. The general rule, however, is that if you go to low and only compare two frames you will not get a very informative report and most likely miss the point of MTFA, and if you attempt to compare too many timeframes you will get lost in the wave of so called noise – the unnecessary small details that can confuse the analysis results. This way, the golden ratio for anyone who is trying out the multi timeframe analysis on Forex is to go with three frames: short term, medium term and long term. This brings us to the question: how to choose the right timeframes for the MTFA?

Choosing the right time periods for Forex time frame analysis

As we have already established, that having three charts is sufficient enough for comprehensive analysis, it is now important to decide what particular time setting to go with in these frames. There is a trick that is often referred to as the rule of four and this is how it works:

Start by choosing the medium term or middle time frame. This will largely depend on the overall trading style you tend to follow. This way a day trader can go with an hour period, while a long term position trader might want to set is as a week or even a month.

Then you determine the short term frame by dividing the medium time setting by four. So for the day traders the short term timeframe is going to be fifteen minutes (a quarter of an hour) and for the position traders who went with one month as their medium, the short term will be roughly a week.

For the long term timeframe you will have to multiple the medium value by four. By this logic the one hour turns into four hours and a month turns into four months.

Once again, it is very important that you choose the right medium term setting from the start since the short term traders will have nothing to do with a four months chart, while long term ones will get confused by the fifteen minute chart’s data. As we now have an idea of what type of timeframes to use for the Forex multiple time frames analysis, let’s now focus closer on each one of them to gain a better understanding of MTF analysis.

Long term frames in the multi timeframe analysis on Forex

Just as in any other Forex technical analysis strategy that involves using different time settings, while attempting MTFA start by exploring your largest frame – the long term. Disregarding of the trading method you are using, the long term timeframe is the best for identifying the general trends on the big picture. This will not mean that you should build trades from this chart, rather settle on the overall direction and keep the long term chart as a guideline.

By building your trading plan in accordance with ongoing trends you will have a higher chance for success. With that said, it is also fair to mention that in some cases you will benefit more from trading against the trade. This of course, requires a high level of market experience and is mostly applicable to currency trading professionals.

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Another important aspect to consider while working with the long term frame during time frame analysis on Forex is the impact of fundamental factors. The fundamentals are various economic, social and political events that can influence certain currency pairs and change the direction of the market overall. Sometimes these events are directly correlated with the financial market and sometimes they have nothing to do with it at all. Nonetheless, every long term trader and sometimes the short term trader as well needs to pay attention to how the fundamental factors reflect on the long term chart. By connecting the two together a trader can get a better understanding of why particular trend is taking place and where is it going to go next. In case you are not experienced enough or simply do not have time to perform your own fundamental analysis, there are handy online resources created to provide you with free daily fundamental analytics. This way you do not have to invest your personal time into this part of long term frame analysis, all you have to do is read and understand the report.
And it is also crucial to consider the factor of interest rates. The rate of interest is perhaps the biggest contributor to the foreign currency market. It is sort of an engine that makes the market not only move on but to exist as well. We will go into more details on interest rates some other time, but what is important to us in terms of MTFA is that the rate always tends to lean towards the highest valued currency in the pair. In simple words, considering the interest rates can help a trader to structure more profitable trades.

Medium term frames in MTFA on Forex

As you have identified the trend on the long term chart it is time to take a closer look at it from the perspective of your medium frame. In here you will see the trend in more detail, but not in too much detail. Depending on the specific time you chose in the beginning when determining your time frame sizes, the medium frame will have everything you might need to create an effective trading strategy. From this frame you can also observe the main points of both long term and short term frames, which makes it kind of the go-to frame when you need to make a decision.

Short term timeframe in multiple frame analysis

While the most of your trades will be built from the medium chart, there are still going to be some scenarios where the use of a smallest frame chart is necessary. By getting a closer look at the smallest details a trader can select the right entry point as well as identify the character of an ongoing trend. It is also important to mention, that when the short term frame is set anywhere below four hours the fundamental trends will no longer be visible. This creates a better environment for the technical indicators which are often used to assist traders with analyzing the market. The more detailed is the chart the more clear the indicator’s results will be.

Low frames can help better analyze the larger ones as well. The market itself if very repetitive on every scale, this means that by taking a closer look at the taken trend the trader can not only confirm the basis for their actions but also predict the outcome of each trade. For example, when you are building a long strategy based on a daily candle the MTFA can help you to identify if the price will continue right away or if there is going to be a retracement first. This can be done by checking if the price was able to break through the nearby resistance or if it bounced back. Logically, the breakthrough will most likely point to the continuation of the movement while the bounce is a clear indicator for a retracement. Needless to say, this will result in very different actions.

Now, one thing to look out for when dealing with the short term timeframes is the noise. On the chart it will look like random sharp elements that do not align with the overall trend. The trader’s job is to disregard these and build trades according to more solid indications.

Comparing the frames during Forex multi time frame analysis

As you have studied all three charts separately, the best step is to put them together by aligning the results. When approaching the chosen pair analysis with the described above top to bottom approach, the trader will increase the success rate of every trade by sticking to bigger trends. This type of trading automatically reduces the amount of risks taken since the price usually ends up following the long term direction.
Comparing the frames can also assist the trader with increasing the level of confidence in a particular trade. For example, if the trend seems to be moving upwards on the long term chart but takes the opposite direction or simply goes slightly lower on the medium and short ones, a trader has to adjust the strategy accordingly by establishing the appropriate profit goals and exit points. In this scenario the best solution would be to go short and pay close attention to the outcome of each trade. The most cautious traders will avoid trading altogether and wait until the data aligns on all three charts, and only then will proceed to go long with confidence.

Multiple time frame analysis is a strong tool when it comes to determining the levels of support and resistance both of which can have a drastic effect on the way a trader operates. Additionally, this strategy helps to find the best possible point of entry as well as exit points. In order to successfully implement the multiple time frame analysis on Forex, let’s briefly discuss some of the key elements, more specifically the trends, momentum and entry points.

A trend on the market chart is a continuous movement of the price of one direction. The trends can be moving upwards also referred to as bullish trends, or downwards or bearish trends. Best way to identify the trend is through the use of technical indicators – specifically designed add ons to a trading platform. Once you have identified the trend you can neither confirm it by using the other set of indicators or by switching between time frames and seeing whether the same trends is relevant in all of them. The key here is to select the right indicators and base both your analysis and your trading strategy on their result data.

Momentum in Forex multiple timeframe analysis

Momentum in MTFA is an indication of overall value change rate of a particular currency’s price. Traders usually use the momentum as the measure of market’s volume. High momentum means that the currency is being sold and bought very fast, which happens when the traders are trying to direct the market in specific direction. In multiple timeframe analysis a momentum can be found by comparing the time frame where the trend was indicated to a lower one. And once you have found both you can use this data to look for entries.

Entry points in MTFA

There are many ways and tools to choose the right entry. When applied to the conditions of multiple time frame analysis, the entries are usually found at the momentum frame or at the lowest available frame. Similar to finding trends, it is always a good idea to have an additional source to confirm the entry. This can be done with the assistance of various price action tools and through the candlestick analysis.

Best time frames for different trading styles

We have already mentioned that the selection of specific time frames will depend on the overall trading strategy. This way intra day traders will benefit from either a day/H4/H1 or day/H1/M15. The even more short term scalpers might consider H1/M15/M5 ( as you can see the rule of four does not directly apply to the short term frame in this case, which shows that even the described model can be flexible to a specific scenario). While the long term traders will find the necessary information from a month/week/day combination. To best determine how to combine the timeframes and how many of them to include, use the following key points for each type:

  • Long term frames are best for determining the levels of support and resistance
  • The medium term frame will help you to identify and analyze trends and momentum as well as corrections and patterns
  • And the short term frames are widely used to locate the entry

How to practice MTFA for free

For new traders the concept of market analysis in general and the multiple frame analysis in particular can seem complex and overwhelming. This is very reasonable as many aspects of currency trading are not as simple as they sound and include a require some previous knowledge and experience. The key to mastering any of trading related skills is always practice – once you get the idea of a specific strategy or technique it is always nice to try it out several times to see it in action. Some traders do this in the conditions of the real market by applying the analysis results and trading small amounts. This approach can be effective, although you are still risking your personal assets if you applied the rules of MTFA incorrectly. In this case the best solution is to practice your analysis skills in demo account.
Demo accounts are complete copies of actual trading accounts. The only difference is all of the trading processed in demo are simulated and you do not need to invest or risk any real money. Because demonstration accounts include every detail from the platform, traders get access to all available time frames as well as to every existing technical indicator. This means you can practice the newly obtained analysis skills for as long as you want to without taking any risks. And then once you are comfortable with analyzing the market and applying the analysis results to your trades in demo you can confidently move on to an actual Forex trading account and start earning.

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What Is The Best Price Action Trading Time Frame?

Every day, I get questions from people looking to trade better. A common question is what is the best time frame for price action trading.

Some of them are looking for a magical time frame that will bring them profits. Others are looking for a starting point to tinker with.

And it’s no wonder. A time frame is the first input you need when you open up a price chart. With infinite time frame choices, it can be difficult to choose.

First, understand that there is no magical time frame. There is no time frame that will work for you forever.

If you are looking for a magic number for your trading time frame, you can stop here.

But if you want to know how to:

  • Arrive at the trading time frame that works for you now
  • Know when you need to change your trading time frame

Then you are at the right place.

To find the best price action trading time frame, start by answering the questions below. (Be prepared to do some work.)

#1: How much can you risk? How much do you want to risk?

A price action trader typically enters the market based on a price pattern. And a stop-loss is placed on the opposite side of the pattern or setup bar.

Some price action traders enter with limit orders at areas of support and resistance. These traders tend to place their stop-loss orders at swing pivots. They might also use a volatility tool like the Chandelier Stop.

The key is that in both cases, generally, the larger the average bar range, the higher the trade risk.

The table below shows a random sampling of the 233-period average true range for different time frames in EURUSD.

The conclusion is that higher time frames require the price action trader to risk more per trade. To trade the slower time frames, you need to be well-capitalized.

This is exactly why new and less capitalized traders gravitate towards fast time frames. This is acceptable if you can overcome the problems of fast time frames, which we will discuss later.

Another common workaround is to trade higher time frames with tight stop-losses. Unfortunately, this is not viable. Such stop-losses are illogical, and your trading setups will not make sense. (Unless you are using a faster time frame to refine your entry.)

Do This

  1. Figure out how much you can risk for each trade.
  2. Observe the market to learn how much you need to risk for different time frames, given your trading strategy.
  3. Stay with the time frame that requires an amount of trade risk that you can accept. If not, save up and increase your trading capital so that you can trade the slower time frames.

#2: How much time can you spend on trading?

The trading opportunities on time frames below 30-minute are fleeting. To trade effectively, you need to keep your eyes on the price action constantly.

For intraday time frames above 30-minute, you need be able to check on the price action periodically throughout the day.

If you can only spare a block of time each day, you should definitely consider trading off daily charts.

If you can only spare your weekends for analyzing the markets, then the weekly time frame is ideal.

In a nutshell, the time frame you can trade depends on how much time you can spend on trading.

Do This

  1. Review your current work and life routine.
  2. Assess how much time you can spend on trading.
  3. Use the guidelines above to help you to shortlist your time frame options.

#3: How fast can you analyze price action?

Even if you can afford the time to stare at the market all day, it does not mean that you should.

You might be able to look at the daily charts of the past six months and arrive at superb analysis. It might take you half an hour, but that’s alright, because you have time.

But if the price bars are forming at a rate of one per minute, can you still analyze price action effectively?

The faster the time frame, the less time you have to perform price action analysis. You need to be able to interpret price action confidently to do well with fast time frames.

Consider both your price action reading skill and your trading personality.

You might have the skill to analyze the market fast. But if you are not comfortable with split-second decisions, a fast trading time frame is not a good idea.

The reverse applies. You might enjoy the rapid action of fast time frames. But you cannot trade it unless you can analyse price action fast enough.

Want to find out if a trading time frame is compatible with your trading ability and personality?

Do This

You need to actually trade under each time frame and observe yourself.

  • If you are making mistakes with your analysis, then the time frame is too fast for you.
  • If you are missing trade setups due to indecision, move to a slower time frame.
  • If you are dozing off because the price action is too slow, drink some coffee. Or, if you are confident of your price action reading skill, drill down to a faster time frame.

Try out different time frames and keep observing your performance. This is the key to fine-tuning your trading time frame.

#4: What is the volatility and liquidity of your trading market?

The volatility of your trading market plays an important role.

A volatile market offers good profit potential for fast time frames.

However, a dull market might not move enough to offer reasonable profit in fast time frames. In that case, you need to increase your time frame.

As a general gauge of the profit potential, look at the ATR and the average length of price swings of the time frame.

The liquidity of your trading market matters too.

For instance, you want to trade stock options. But most stock options are not liquid enough for intraday trading. Hence, trading the daily time frame is a better idea.

Do This

If you want to trade fast intraday time frames, make sure that the market is volatile and liquid. If not, stick to trading daily charts.

#5: How do your setups look like?

Some traders claim that setups on the slower time frames are more reliable. And that there’s more noise in the fast time frames.

That’s not always true.

What is more important is that your trading strategy is compatible with your time frame.

Some methods work better on daily charts, while others do well in fast sub-minute time frames.

The acceptable time frames also depend on the type of setups and price patterns you trade. Clearly, the price patterns on a 30-second chart look different from those on a daily chart.

Do This

Ultimately, you need to evaluate your time frame in light of your trading strategy. Make sure that they are compatible.

Since you are the expert on how you trade, you are in the best position to judge compatibility.

In my trading course, I’ve explained a few concepts I use to select and monitor my trading time frame.

  • Price Action Trading Index – a measure of price bar normality
  • Minimum Trading Time Frame – the smallest time frame amenable to price action analysis
  • Optimal Trading Environment Index – a measure comparing volatility to trade risk

I won’t explain these concepts in detail as I’ve designed them for my trading framework. If you are not using the framework, they are of no use to you. You should be formulating your own system to decide on your trading time frame.

Finding a Price Action Trading Time Frame that Works for You

It’s clear that the optimal trading time frame depends on the individual trader.

Stop asking what is the best time frame for price action trading. Start learning how to find the best trading time frame.

By understanding the “how”, you will know when you need to change your time frame.

But once you have a workable time frame, it’s unlikely that you need regular and drastic changes. You need to maintain a fixed time frame to develop other aspects of your trading process.

Do not keep switching your trading time frame. It messes with your trading perspective.

Now, perform a thorough self-review with the questions above. Then, study the market that you want to trade. Finally, put them together and you will find the trading time frame that works best for you.

Simple Way of Trading Multiple Time Frames in Forex

Time will be one of the most important variables all traders will need to think about. In fact, your preferred trading time frame will directly affect which trading strategies and indicators will be most effective for you. While some traders want to hold positions for many periods in a row, others (such as day traders) will hold their positions for very short periods of time.

Finding the right time frame for your trading is not an easy task.
A Forex trader faces a wide variety of choices when the trading career is started… and choosing the chart type and time frame configuration is one of them. Also, read the weekly trading strategy that will keep you sane.

How do I determine the time frame and what things should be considered?
First of all, the time frame choice is connected to your trading style. Here is a list to provide an essential idea:

  1. In case of a position trader – use higher time frames like a weekly chart.
  2. In case of a swing trader – use intermediate time frames like a 4-hour chart.
  3. In case of an intra-day trader – use lower time frames like a 15-minute chart.

This is a simplified approach and we advise to tackle the market in a smarter way – more on that down below.

One more important message: there are many other important choices (besides time frame) that need to be made before you start risking your trading capital. Of course, the Double Trend Trap method is always available if you want to make your trading simple. Also, read bankers way of trading in the forex market.

MULTIPLE TIME FRAME (MTF) ANALYSIS

Trading Strategy Guides advises traders to use multiple time frame analysis techniques. This can result in a most reliable forex strategy.

Why? It offers the opportunity for traders to understand the market structure in a much deeper and profound way than any single time frame analysis can do.

Single time frame:

Multiple time frame:

It offers the chance for traders to read what the big money is doing, instead of trying to follow someone on TV. It offers the possibility for traders to improve and enhance their strategy’s performance via better entries, exits, trade management, money management, etc.

Let’s compare this with a single time frame strategy. A single time frame strategy offers a very limited view of the market and often leaves traders confused as to why their setup is failing.

This is why we recommend multiple time frame (MTF) analysis. Using MTF does have the drawback that it can confuse new traders just starting out. Here you can learn how to find opportunity in Forex.

MTF’S SECRET MIX

That is where our TOFTEM model steps in. If you are left scratching your head, don’t worry. Click this link about chart patterns for more information.

  • The TOFTEM system allows traders to use multiple time frame analysis in a simple step by step fashion.
  • Traders in fact hardly realize they are implementing MTF because it is engrained in the strategy.
  • Trading MTF becomes a natural flow with the TOFTEM model.
  • This IS your “secret weapon,” so use it wisely!

As a result, our analysis and trading process becomes simple. You also get a better snapshot of the market with multiple time frame analysis. Now traders can have the benefits of both worlds:

  1. The simplicity of a single time frame approach.
  2. Combined with the in-depth understanding of market structure via multiple time frames.

Wow! You gotta love trading, don’t you? ��

The DTT strategy uses the TOFTEM model for its approach as well. Although the DTT is not the only configuration possible, it does make the steps simpler for you as a Forex trader. We also have training on Japanese Candlesticks and How to use them.

MULTIPLE TIME FRAMES AND TOFTEM

Multiple time frame (MTF) analysis offers traders the variety needed to implement the TOFTEM model. Before we embark on this journey, let us explain what degrees of time frames we use and what the TOFTEM stands for.

Trading Strategy Guides uses 5 primary degrees of time frames. Irrespective of the time frame a trader chooses, its best to maximize the number of degrees to 5. The time frames we use for this article are:

  • Weekly, daily, 4 hour, 1 hour, 15 min.
  • Some traders use the 8 hour and/or 2-hour charts instead of the daily, 4-hour, and/or 1 hour. This is perfectly fine.

TOFTEM stands for:

The TOFTEM and MTF are explained step by step below:

STEP 1 TREND:

  1. The recommended trend time frames are the 4-hour, 8-hour and/or daily chart because they provide sufficient overview of the past price action in the market. Traders can adequately judge whether a market is trending, reversing, or ranging.
  2. If a trader is trading long-term positions, then the weekly chart is optimal.
  3. If a trader is trading very short-term positions, then a 1-hour or 2-hour could be better.

The beauty of our DTT trend indicators is that they automatically show what the trend is in the 4 hour and daily charts no matter what timeframe you are actually looking at! This keeps your trading simple and consistent throughout time. Here You can see a funny video about trading levels.

If the market matches what your strategy is looking for, then you can move on to the next step which is an opportunity. If not, then move on to the next currency pair.

STEP 2 OPPORTUNITY:

Trading Strategy Guides recommends checking whether there is an opportunity for 1 and/or 2 time frames lower than the trend chart. This provides the possibility for traders to zoom in and look for trade setups in the direction of their step 1.

STEP 3 FILTERS:

Trading Strategy Guides recommends checking whether there is a filter on 1 (and/or 2 time) frame(s) higher than the trend chart. This allows traders to check whether any major support or resistance levels (and/or other chart elements) could be blocking a potential trade setup from materializing.

The currency pairs that remain interesting after review via these 3 steps, can be placed on a “watch list”. These are trade setups which are getting close to execution.

STEP 4 TRIGGER:

Now that the potential trade setup is close, Trading Strategy Guides recommends checking for triggers on the on 2 (and/or 3 times) frame(s) lower than the trend chart. The trigger chart should be closer to price action than the trend in Step 1 (Trend) and Step 2 (Opportunity) as it keeps in sync with the market rhythm.

STEP 5 ENTRY METHOD:

The timeframe for the entry can actually be quite diverse. It can be the same as the trigger chart, or even again 1-time frame lower. It could also be the same time frame as the Step 2 Opportunity chart.

For the DTT traders, all of the above is well-known. For others, this approach is new, or almost new.

How do YOU view multiple frame analysis? Do you trade better with it? What advantages do you get while trading using MTF? What do you think about this simple way of trading forex?

Please tell us how your time frame approach differs from above.

Thanks for taking the time to read this article and hope you will share it with others as well. Leave a comment below if you have any questions about this simple way of trading multiple time frames.

Also, please give this topic a 5 star if you enjoyed it!

(7 votes, average: 4.29 out of 5)
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