Multiple Time Frame Analysis for Forex, Futures, and Stock Traders

In our last lesson we learned about support and resistance and how to spot these levels in the market. We should now have a good understanding of how to spot trends in the market, some of the components that make up those trends, and finally how to recognize support and resistance levels. Now lets tie everything together we have learned thus far with the final concept of this series, Multi Time frame analysis.

No matter what time frame you end up using when trading the stock, futures or forex market or what time frame a particular trading strategy calls for, it is important always to have a big picture overview of what is happening in the market. Although there are exceptions, in general most traders will tell you that if your trade setup or analysis lines up on multiple time frames, then the odds of being correct are greatly increased.

Lets look at a simple example by looking for a trade to place to take advantage of a trend that we have spotted on a chart. For this example lets say we are looking at a 5 minute chart of the EUR/USD.

5 Minute EUR/USD Chart:


As you can see from the above chart if we were just looking at the EUR/USD 5 minute chart then we would note the downtrend in the market and sticking to the simple strategy of simply following the trend, we would look for opportunities to sell into the downtrend.

As we want to have a better feeling for the general direction of the market however when we place this trade we next take a look at an hourly chart.

1 Hour EUR/USD Chart:


As we can see from this chart we also spot a longer term downtrend on the hourly chart thus giving us more confidence in our potential trade into the downtrend on the 5 minute chart.

Lastly to make sure that we are getting the full picture we pull up a daily chart.

Daily EUR/USD Chart:


When looking at this chart however we see that not only is the EUR/USD in an uptrend on the daily chart, it is in an extended uptrend. As the daily chart does not line up with the 5 minute and the hourly chart we may want to question whether or not to place the suggested downtrend trade in the face of the large uptrend on the longer term chart.

Now that we understand how a trading signal in the stock, futures, or forex market can be considered “stronger” if it lines up on multiple time frames, a more prudent way to search for potential trades may be to start by looking at the longer term time frames, and then look for opportunities on shorter term charts which are in line with what the longer term charts are showing.

The same concept applies when looking at support and resistance. In general the more time frames and the longer the time frame is that a support or resistance level shows up on the more “valid” that level is considered.

That’s our lesson for today. You should now have a good understanding of multiple time frame analysis and how looking at different time frames can give us more or less confidence in trades we are considering making.

In our next lesson we are going to start a new series with an introduction to forex, futures, and stock market chart patterns and the double top and double bottom pattern.

As always if you have any questions please feel free to leave them in the comments section below so we can all learn to trade together, and have a great day!

What are yr favourite indicators David? And can I be so nosey as to ask if you have tracked success rate?
Thanks tom

Hi Tom,

Thanks for the question. There are times when I have used all of the indicators that I cover in my video lessons on indicators but if I had to choose favorites I would say the stochastic and the ADX are my favorite. The stochastic because it gives a good picture of how overbought or oversold the market is and the ADX because when plotted with the +DMI and the -DMI it gives a good picture of the strength of the up forces in the market and the down forces in the market.

My opinion is that indicators should only be one part of any strategy so no I have not tracked the success rate of the indicators as they are used simply as a guide and not as buy and sell signals by themselves.

Hope that helps let me know if there are any other questions and if anyone else would like to discuss their the indicators they use I am sure everyone would love to hear about them so I have added a new thread on favorite indicators here.

Best Regards,
Dave

Hi, David!

My honors for your initiative! Your videos, texts and answers are impartial, clear and smart! Something rare to find.

I would like to propose to you to add additional references to each video or topic added. These references could be books, books' chapters, related sites, articles, magazines, etc.

Thank you and have a nice day!

Lucas.

Hi Lucas,

Thanks for the comment.

Its funny that you have added this when you did because I am in the process of doing just that. It is a little overwhelming to be honest doing it by myself however so if you or anyone else out there has resources that you think would add to the lessons please feel free to drop them in the comments section of the video or email them over to me at david@informedtrades.com.

Best Regards,
Dave