Multiframe analysis

Multi-frame analysis is when we analyze the same currency pair or other asset on multiple time frames at once.
You know that any price can be seen on a chart:

per hour
15 minutes
5 minutes
1 minute

We have many opportunities to study the behavior of the same price. And it is the multiframe analysis that will allow us to do it correctly and efficiently.

There are quite a few trading systems where daily or even weekly charts are taken as a basis. Does this mean that sets in higher time frames are not applicable in small ones? Absolutely. That is exactly what we need.
Let’s say you saw that the EUR/USD is in a downtrend on the 4 hour chart drawing a trend line.

However, your main trading chart is a 5-minute chart and you can see perfectly well that the price on it goes up/down, and the 4-hour time frame trend line is hovering well above it. and what to do with it what time frame to look at?

Traders are often confused by this. Come a sell signal on the 4-hour chart and a buy signal on the 15-minute chart. What should we do in these situations? Let’s find out which timeframes should be used and how to refine them.

The best time frame

The question of which time frame is best to trade in is asked quite often. And this question always has a wrong answer when a beginner trader chooses a time frame that does not suit him psychologically at all.

Inexperienced traders want a lot of money at once in the shortest amount of time. So, naturally, they choose the 1-minute or 5-minute chart. However, with the step Over time, it turns out that these time frames cause frustration and emotional distress for most traders. The frenetic pace of price on these time frames causes incredible greed, shuts down the brain and most people lose money.

Some people are comfortable trading on the 1 hour chart. There is much more time to wait and there are much fewer signals to take. But there is much more time to analyze the market and there is no rush. And, of course, a frequent guest on terminals is various time frames on one screen.

The goal of the Dow Theory is for us to analyze the price from the highest time frame to the lowest and thus get a complete picture of the market. The time frame is just a detail of the price movement. The price chart is always the same. You can simply watch the price on the one minute chart or the monthly chart.

When it comes to the main deadline, it could be too fast or too slow. This is normal, and it should be. You’ll be trying them all anyway, so the question of a constant time frame is purely rhetorical. We are going to compare various time frames, what are their advantages and disadvantages.

Long-term time frames.

These are the daily and weekly charts that give you a bird’s eye view of the markets. It’s for the real turtles.

Medium-term time frames

These are mainly hourly charts. There are much more opportunities compared to daily and weekly charts, there can be multiple trades per day.

Short term deadlines.

The deadlines, respectively, are 15 or 1-5 minutes.

When choosing a time frame, you should also take into account the number of trades and your deposit. Remember that the lower the timeframe, the messier the trades it triggers. These emotional pitfalls are one of the main reasons people lose money on Forex.

psychological time frame

The most important thing to understand is that the trading term is tailored to you and your personality. Different people = different trading terms. With experience you will have no problem finding a good TF for you. Before looking for signals and on a lower time frame, you should analyze:

4 every hour or even every day
1 hour chart

And for each of them, we need to draw support/resistance lines, channels, and what Grandpa Dow asks of us. This is how retracements can be identified on, say, a 15-minute chart. Because on higher time frames the price finds strong support or resistance. As you already remember, the larger the time frame, the more reliable the resistance and support levels are. When you see the panorama In general, the chances of success in trading decisions increase significantly. But with newbies the opposite happens. They set up a 1 or 5 minute chart and the other TFs don’t interest them at all.

The practice of multiframe analysis

We have already understood the essence of analysis in different frameworks, it was also discussed in Dow theory. This is how we see global price movement: long-term trends form at higher frames, and support and resistance are much more reliable at long-term TFs.

It all starts with choosing a trading time frame, after which we climb the ladder to get the full picture. And the whole picture is the understanding of what is happening in the market. The market only has two states: the trend and the consolidation. The analysis of the upper time frame allows us to find out which entry and under what conditions to make a trade. Tunnel vision or global vision; the choice is obvious.

The best 3 installment packages

It is best to use three TFs:
The first will show us the main trend, the panorama market overview; the second is a medium-term signal.
The third is the detail of the second signal, here we will look for the exact entry zone.
The most popular combinations of terms, according to their level of detail, are the following:

1, 5, 30 minutes;
5, 30, 240 minutes;
15, 60, 240 minutes;
1 hour, 4 hours, daytime;
4 hours, daily, weekly.

There should be a sufficient time interval between the deadlines. Otherwise, instead of details, you get a simple clarification that isn’t particularly helpful.

In summary

Multiframe analysis is a framework that complements and is actually based on Dow Theory. First you have to choose a global time frame and then learn to detail it. Conversely, zoom in on smaller time frames to get a bigger picture of what’s going on. Never enter trades without checking the situation on the higher time frames. Otherwise, you risk getting stuck in a time frame and will surely miss out on a major market move.

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