We like to call our version of a mash-up the “Time Frame Mash-up” here at forexinvestindo.com.
This is where the use of several time frames comes into play.
This is where we’ll show you how to not only lock in on your preferred trading time period, but also zoom in and out of charts to hit a home run.
First and foremost, take a comprehensive view of what is going on.
Try to move your face away from the market rather than closer to it.
Remember that a trend on a longer time period has had more time to build, which indicates that the pair will need a larger market move to alter course.
Longer time spans also have higher levels of support and resistance.
Begin by picking your desired time window, then progress to the next higher time frame.
How to Perform Multiple Time Frame Analysis
Assume Mrs.A, who is bored all day cleaning, decides she wants to trade forex.
She realizes after some sample trading that she prefers trading the EUR/USD pair and feels most at ease gazing at the 1-hour chart.
She believes that the 15-minute charts are too rapid, while the 4-hour charts are too slow; after all, she requires beauty sleep.
The first thing Mrs.A does is move up to look at the EUR/USD 4-hour chart.
This will assist her in determining the general trend.
She notices that the pair is clearly on the rise.
This tells Mrs. A that she should only search for BUY indications. After all, isn’t the trend her friend? She doesn’t want to get tangled up in the wrong path and lose her slipper.
She now returns to her chosen time frame, the 1-hour chart, to assist her in identifying an entry point. She also selects the Stochastic indicator.
Mrs.A returns to the 1-hour chart and notices that a doji candlestick has developed and the Stochastic has just crossed out of oversold conditions!
But Mrs.A is still unsure…. she wants to be sure she has a truly good entry point, so she scales down to the 15-minute chart to help her locate an even better entry and to provide her with more confirmation.
So now Mrs.A is focusing her attention on the 15-minute chart, and she notices that the trend line appears to be holding fairly well.
Furthermore, Stochastic is indicating oversold circumstances on the 15-minute time period!
She believes that now is an excellent moment to enter and buy.
Let’s wait and see what occurs next.
As it turns out, the upswing is continuing, and the EUR/USD is climbing the charts.
Mrs.A would have entered just above 1.2800 and would have won 400 pips if she had held the trade open for a couple of weeks!
She could have purchased a new pair of glass slippers!
There is definitely a limit to the number of time frames that can be studied. You don’t want a screen cluttered with graphs showing you different things.
Use at least TWO, but not more than THREE time frames.
Adding more will merely confuse the hell out of you, and you’ll suffer from analysis paralysis before going insane.
Is there a correct technique to perform multiple time frame analysis?
Some of our forex pals have been gracious enough to share their thoughts on the subject via this forum topic on various time frame analysis.
At the end of the day, it’s all about figuring out what works best for you.
Next Lesson: Trading With Three Time Frames