When you enter the forex market, whether a newcomer or a seasoned pro technical trader, you will be introduced to the concept of multiple time frame analysis.
However, when you seek an advantage over the market, this well-established method of reading charts and formulating strategies is frequently the first level of analysis to be overlooked. This guide will explain multiple time frame analysis and how to identify the best forex time frame.
What Is Multiple Time Frame Analysis?
Simply put, multiple time frame analysis is the process that involves monitoring the same currency pair in different time frames. It will allow you to gain insight into the higher and lower time frames. This means you can make better trading decisions and time for entries and exits.
Remember that a currency pair exists on several time frames – daily, hourly, 15-minute, and even 1-minute!
You will notice these different time frames when you use a chart, meaning there are different market participants. Forex traders can have different opinions on how a pair trades, and both can be entirely correct.
While there is no actual limit to how many frequencies can be monitored or which specific ones to select, most practitioners will adhere to general guidelines.
Usually, the larger time frame is used to establish a longer-term trend, while a shorter time frame is used to spot ideal entries into the market.
How to Identify the Best Forex Time Frame
Using the correct multiple time frame is always a question for many traders – new and experienced. So, how to identify the best time frame to trade forex?
In general, traders should select a time frame in accordance with:
- The amount of time available to trade per day
- The most commonly used time frame for identifying trade setups
For instance, it is better to use the daily time frame for analysis and a four-hour chart as the entry trigger for traders who scan the forex market daily but can only spend one hour per day in front of the charts.
People who have more time to invest in the market might have much shorter time periods since they can analyze the market and take advantage of possibilities as they present themselves.
A Guide for Day Traders
Day traders typically have the entire day to monitor charts and can thus trade within concise time frames.
These range from one minute to 15 minutes to one hour. Day traders who identify trade setups on the one-hour time can zoom into the 15-minute time frame to find ideal market entries.
- Trend time frame: One-hour chart
- Entry time frame: 15-minute chart
A Guide for Swing Traders
When compared to day traders, swing traders have significantly less time to spend monitoring charts – perhaps one hour or less.
Swing traders will look at the daily chart for the overall trend before zooming in to the four-hour chart to spot entries.
- Trend time frame: Daily chart
- Entry time frame: Four-Hour chart
Multiple time frame analyses can only be utilized once your desired market has been chosen. Find out what trading style matches your trading personality.