Using Multiple Time Frame Analysis For Trading
Every successful trader uses a trading strategy process in order to ensure that they have every chance of becoming profitable. If you aren’t following a process, you will be trading on a whim, and this can result in losing trades. Learning to trade properly by following a process and understanding your markets is a huge factor in your overall trading success.
A good trading process will consider the following:
- You And Your Lifestyle
- Entry Level
- Stop Level
- Profit Target
- Position Size and Account Risk
Using Multiple Time Frames To Aid Your Trading Process
As technical analysts, in order to determine the above factors, including your entry level and stop level, you will be analysing your charts. This is where using multiple time frames can allow you to consider the above points and allow you to follow your trading process seamlessly. When you use charts for analysing the markets, you can choose different time-frames to analyse, for example, a weekly or daily chart. We recommend that you set up your charts in multiple time frames. In simple terms, this means that you can set up your screens to show several charts (showing different time frames) and save it as a template for you to go back to.
Which Time Frames Should You Be Using?
Whether you are a swing or day trader, novice or expert, using multiple time frames when trading has many benefits, but how do you know which time frames to choose for you? Choosing time frames is dependent on what type of trader you are, whether you are an intraday, swing or day trader. Choosing and using the ideal time frames for you will increase your probability of trading successfully and making a profit. There is not a perfect time frame suited for every trader, the time frames you use will be unique to you. Don’t make the mistake of focusing on just 1 time frame because you could miss the overall primary trend.
How To Use Multiple Time Frames
Lee Sandford, Trading College’s MD and qualified technical analyst, uses the multiple time frame strategy. Using this type of trading strategy allows you to find trading opportunities and turn them into profits – you just need to know where to look. At Trading College, you will hear our coaches recommend that you always trade with the trend.
Identifying the primary trend is essential for you to understand the markets and place profitable trades, however, when using multiple time frames, there could be conflicting trends. For example, you may find an uptrend in a weekly, but a downtrend in a daily time frame. Over analysing the short-term trend could mean that you buy into false moves, so ensure you are using multiple time frames to see the overall trend. This, however, isn’t necessarily a bad thing if you know how to interpret your charts properly through technical analysis.
Typically, we suggest that you use 3 time frames to get an overall picture of what the markets are doing and what they could be doing next. Ideally, you should pick a time frame that you are interested in trading, then one longer and one shorter. You will use the mid-time frame chart to find your trading signal, the long-term chart to find the primary trend and the short term chart to find your entry and exit points. When you use a longer time frame, the signals will typically be more reliable as they will show the primary trend and give you an overall picture of common patterns and help you to confirm your strategy. Once you can spot the primary trend, you can use the middle trend from the mid-time frame and the short term trend from the smallest time trend. For example, a swing trader could use these 3 time frames – 60 minutes to show the short term trend, daily to make their trading decision and weekly to spot the primary trend. Furthermore, a day trader could use a 5-minute chart to look at the short-term trend, 15 minutes to trade and 60 minutes to see the primary trend.
Together, the combination of multiple time frames allows traders to better understand the trend of the commodity they are trading and become more confident in placing the trades. If you are new to trading, we recommend that you start with 2 time frames (eg daily or weekly) so that you aren’t overwhelmed with trying to analyse too much (analysis paralysis)! Start small and add more windows (time frames) as you improve. When you get good at this, you will be referencing all the time frames.
When choosing the right time frame for you, you will need to consider these things:
Your personality type
Your work schedule
Your ability to manage open trades
Whether you are a scalper or swing trader
How well you manage risk
Every Monday evening, our Mentorship and Pro-Trader Programme students tune into our Scan Club as we look at at the markets together to analyse where the price is going. If you would like more information, click here for the Mentorship Programme and here for the Pro-Trader Programme.