Multiple Time-frame Analysis

Hello Traders, this is Nathan Tucci and I just have a short article here for you about checking your set-ups on multiple time-frames. I know that many of you, if you have a strategy that is built around a certain time-frame, do not have any interest any other time-frames than that of the one your set-ups are built on, but I would encourage you to analyze other times as well, and in this brief article I am going to explain why it is important and show you a few examples of how not being diligent in my pre-trade analysis has hurt me in the past.

So let’s get started by mentioning the basics of why multiple time-frame analysis is so important.

  • Key levels of support and resistance may exist near your trade, but that can’t be seen on the time-frame you are trading on.
  • The trend may appear differently on the time-frame you are looking at than where the longer term trend is really moving.
  • Price may appear to have room to move on one time frame where it is actually quite over-extended on a lesser time-frame.
  • You can make a much more precise entry point on shorter times than on longer ones.
  • You may take a great trade on a short time-frame  and hit your target, but not realize you could have let it run for a way bigger profit due to the longer term trend

So there are quite a few things that can  hurt you as a result of not looking thoroughly at multiple time-frames, but in this article, I am going to focus on two of them:

– The trend being against you in a longer time-frame

-Price being over-extended on a shorter time-frame

1st. Many times, I will be trading my Bollinger Band Strategy on the 4hr or 1hr chart. I will have a very nice set-up and take the entry based on my criteria; however, I may forget to analyze the daily and weekly (often because I am excited to see my set-up and cannot contain myself enough to be patient) and find that it is very counter-trend even though on the 4hr or 1hr it looked like a pretty decent channel.

Let me show you a trade that hurt me quite a bit due to lack of Multiple time-frame analysis (click to enlarge):

So on the 4hr where I made my entry, the trade looked perfect. It was a choppy-looking market with a lot of downward movement. Nothing on the 4hr made me believe that this trade wouldn’t work out great, but obviously it was a loser. Now, if I would have looked at the daily chart, I would have seen that I was actually making my short entry in a very strong uptrend and therefore should not have made that entry. Let me show you what the daily looked like during that entry:

Okay, so now we see that this was a horrible trade. I had no business taking a short position where I did on that daily chart, but because I didn’t take the time to do full analysis prior to making my entry, you can see that I lost money. This is a prime example of the trend being against you when you don’t realize it. You must watch for that–ALWAYS look for the longer trend when you are making an entry.

_____________________________________________________________________________________________________________________________________

The next example I want to go over is when price appears to have room, but is actually quite ready to reverse on a smaller time-frame. In this example, you may not actually lose the trade because the longer term entry is on your side, however it may put you in a bad situation where your behind in the trade 15 or 20 pips very early in the trade.

So here is another Bollinger trade that I took, but didn’t pay close attention to the smaller time-frame.

So, here we see my entry, which matches my criteria perfectly, but I get a rather large retracement almost immidiately after I enter. The reason this happened is simple: although price had plenty of room to move on the 4 hr, it was over-extended on the hour and therefore had to bounce up in for “breathing room” before it could continue downward. Here is that hourly chart:

Okay, so you can see from this chart that where I took my entry was in a place where price was over-extended on the shorter time-frame. If I would have seen that before the entry I could have waited for the hourly retrace and made my entry at a MUCH better price. Note that when price is over-extended it does NOT always bounce up; however is it way too big of a chance to take when you’re trading.

I hope this helped you better understand why multiple time-frame analysis is so important and how it can help you gain extra pips and save yourself from losing them. Please feel free to leave comments with your thoughts and you have any questions about what I am saying, I would love to help you!

Thanks,

Nathan

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Latest posts by admin (see all)

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news

  • nishebita

    Very simply and Nicely explained. Thank you so much. Only to be remembered and applied to the point. Thank you.

  • wildbloodhawk

    Great stuff and easy to understand. I call the monthly- Big Boss, weekly- Boss and daily- worker. what you say makes perfect sense and clarifies what appears complicated by some authors. I am undecided on which combination to use. Which is the best combo for a Focused Novice

  • Paul that sounds like a great idea let us know how that works for you.

  • Paul Murphy

    I Started Trading with Daily Charts Recently and i zoom down to the 4Hr and 1Hr Charts to Get
    The best entry

  • I agree we should all look at multiple time frames when trading.

  • forex community

    The multiple time frame is the clearest way to analyze trades.Thanks for sharing.

  • Anonymous

    Thanks Lee! I appreciate the kind remarks… I hope that you will be more patient now and make more money, too 😉

  • Lee

    Thank you much, Nathan. The multiple analysis make a lot of sense and your critique helped to establish in my brain the necessity of patient info gathering before making the entry.

  • Starsuvarna

    Hey good one. I use Multi time frame M30,1hr,4hr,d1,w1,mn RSI (5) plotted on my 4 hr chart and works wonder for me. Would be glad to share the indicator.

  • Aries Lanisy

    A very nice article with crystal clear and easy to understand! Thank You Nathan.

  • Anonymous

    Thanks Gerardo, I appreciate the kind remarks and am glad you have read along.

  • Anonymous

    Thanks for reading, Arham. I appreciate you leaving a comment and getting involved!

  • Anonymous

    Hey, thanks for reading and leaving a comment. I agree that it is extremely important; if I was diligent in multiple time-frame analysis, I would save myself a lot of pips…

  • Anonymous

    Hey, thanks Yasir, I appreciate you reading. We all need to remember the basics 😉

  • Anonymous

    Thanks, Joachim, thanks for reading!

  • Gerardo E Rodriguez

    Greetings Nathan.Here Gerardo R.First, I congratulate you for its clarity of ideas, experience and above all, because he knows how to transmit caller to think and act in difficult situations.Thank you once again his words and advice.Gerardo.

  • joachim

    hey there thanks a lot,nice work, joachim

  • Yasir

    Brilliant article. Good revision of the basics

  • forexhero

    A very good article, to me multiple time frames is the best way to analyze trades[ at lest three time frames]. If you trade on 5min, you should have your eyes on 30min and 4hrs.[ 15min with 1hr and 4hr, 30min with 4hr and daily, 1hr with 4hr and daily, 4hr with daily and weekly]. With these time frames combination your winning rate should be high.

  • Arham dada

    absolutely cool observations, thanks Tucci