Multiple time frame analysis is one of the best ways to make sure that your trade has a greater chance for success. Most traders forget about it or simply ignore it, because looking at only one time frame is easier (so we think). As a serious trader, you need to be aware that a thorough analysis of each set up is the basis of trading and a very important element. How does the MTF work and how should it be used?
First, you have to consider your trading time frame. For example, if it’s a typical intraday on the M15 chart, we need to check how higher time frames are arranged with respect to the M15. Use the same indicators on H1 and H4 charts to make sure that the market is set towards your bias.
Most traders find themselves analyzing a currency pair on a single time frame. But looking at just one TF only allows you to see part of the picture, while the rest may be completely different than what you think. Multiple time frame analysis will help you find pairs that have different time frames pointing in the same direction. This is exactly the type of opportunities you should look for on the charts. When you look at only one TF (especially in lower time frames), you may find out that a potentially good setup is only a pullback of a higher trend. Ever wonder why the market quickly goes against you after you enter on the M15? When you analyze only lower time frames, you trade against banks and large financial institutions exposing yourself to more risk.
MTF analysis begins by identifying the direction of the trend. I usually like to start with the daily chart, but let’s look at an example using the H4, H1, and M15. As you can see in the picture below, the market is in a down trend. You should be looking for selling opportunities only…
Now if you drop down to the H1 you will see it’s still in a down trend. The market is continuing to create lower highs and lower lows…
Now you can drop down to the M15 to find that perfect entry. Again, you’re only looking for short opportunities. You may see some buying opportunities, ignore them. This is not a trend reversal, it’s only a pullback of a higher trend…
For the proper MTF analysis you should use at least three time intervals.
- If you trade on H1, analyze the trend on intervals D1, H4 and H1.
- If you trade on M15, check out how the trend on H4, H1 and M15 looks like.
- If you scalp on M1, make sure that M15 and M5 intervals are compatible with your trade.
Ideally you want to wait to enter until momentum in each time frame is aligned…all bullish for an uptrend or all bearish for a downtrend. Does multiple time frame analysis guarantee you a winning trade? Of course not, but it will give you an edge and increase your chances of having a successful trade.
To use MTF Analysis correctly, after you establish the trend, you want to check a couple of lower time frame charts and only enter the trade when they are in agreement with the longer time frame chart that you used to establish the trend. Hopefully that makes sense. If you have questions, please feel free to comment below. Thanks for reading and my the pips forever be in your favor.