Multi time-frame analysis for successful trading AUDUSD example
PROBLEM
One of the big problems that many new traders have, is that they get caught up just focusing on the SINGLE time-frame. Typically, this is most common among traders who like to trade intraday or seek to apply scalping strategies. They drop down to the one hour, thirty minutes, or even 15 minute or 5-minute charts where there seems to be more action and more opportunity and they start trading only to discover that they often find themselves on the wrong side of the market.
There are many reasons why this can be the case but generally is due to the fact that the trader is only paying attention to a single frame and isn’t aware of the more important higher time frame levels or direction of the higher time frame trend which are actually crucial for trend detection which will lead to a timely entry and proper stop loss and take profit levels.
SOLUTION
Multiple Time-Frame analysis has to be considered to be one of the most robust technical analysis models. The trader analyses at least three or more different time frames in order to get to a trading strategy. For the average trader, multiple timeframe analysis could seem to be a bit complicated due to the various timeframes involved. But with a disciplined approach and developing skills over time, a trader could very well incorporate multiple timeframe analysis with ease and get to a key trading levels and trading strategy in under 5 minutes for every instrument in the market.
Of course, with multiple timeframe analysis, the biggest issue with “Analysis Paralysis” With multiple timeframe analysis, it is easy for a trader to end up overanalyzing their charts resulting in analysis paralysis; the moment where you end up being confused or end up with conflicting views of the markets altogether. The easiest way to avoid such traps is to have an exact idea of what is the most important thing to achieve by analyzing multiple time-frames.
That is why the most important question that comes to mind when talking about multiple timeframe analysis is its effectiveness and whether this approach offers any value to the trader, or gives an edge. The simple answer is Yes; but only when applied correctly meaning that you are using a multi-timeframe analysis to get to a key trading level from the monthly, weekly chart, and to identify the price action on a daily and H4 charts than for trading entries.
So, the main purpose of multiple timeframe analysis is for the trader to time their entries and exits. The importance of multiple time frame analysis could best be illustrated with an example.
$AUDUSD
By focusing just on a single time-frame, like H1 for example at this moment AUDUSD is looking very bullish, but traders are not seeing the “bigger ” picture that is coming from longer time-frames, and they could go long when actually the pair is facing a strong long-term upside resistance.
But when we take a look at the monthly, we can see that mot only it is not an uptrend and bullish it is a heavy downtrend which has already taken some heavy downside resistance along the way and now is making a retest of it and also hitting a multiple confluence of the upside resistance around 0.7000.
FUNDED PRO TRADER PROGRAM JUST NOW 30% OFF ON REGISTRATION FEE! REAL MT4 TRADING ACCOUNT!
By digging deeper and sharpening our analysis on the weekly chart we can also see that the pair has clearly broken below 0.7000 and with confidence. After such a swing down it is usually in the market that we have a pullback, which is ongoing now and is finishing its 5th waves up by retesting a previously broken downside resistance now downside support. Why we have underlined pullback? Because a retracement in a confirmed long-term downtrend like this one is is called a pullback and not an uptrend like you had a feeling by just looking at H1.
And here we are on a daily chart, we can see that the instrument is in the terminal wedge which has been by the way broken, although not significantly. After falling out of the rising wedge (usually bearish), we have a consolidation triangle and a break below 0.6800 will be considered as a start and a continuation of the long-term downtrend with the highly profitable target levels much lower. Now you can make a pause and you can take a look at the H1 time-frame again and all of the charts after. Do you still consider a long trade entry a high probability success low-risk entry?
We have used the combination of the top-down trading analysis to get these key levels explained in the charts. If you want to apply multi time-frame analysis in your trading register for mentoring.
MENTORING+ANNUAL PREMIUM MEMBERSHIP $200 OFF!
Process For Multi Time Frame Analysis
We hope that now you can see just how important multi time-frame analysis can be in helping you avoid the common mistakes that so many new traders and even experienced ones unnecessarily make. All the traders should look to develop a solid process for integrating multi time-frame analysis into their trading analysis to help them better understand and approach the market. No matter which timeframes you prefer to trade it is always beneficial to take a step back and look at the bigger picture to help highlight both opportunities and risks to be managed.
- Identify the higher timeframe trend. Each week when you pull up your charts be sure to identify the dominant trend, this will give you your directional bias for the week. E.G If AUDUSD is moving in a bearish long-term trend then you only want to be looking for short opportunities.
- Use indicators to help you identify the strength and health of the trend. Just because you have established a directional bias does not mean that you can just blindly enter the market hoping the price will move In that direction. Indicators will help you refine your entry points helping you to gain entry at periods where the market has corrected and is now ready to resume the trend.
- Identify all key levels on your charts. Make sure that any significant levels of support and resistance are STRONGLY highlighted on your charts so that when you drop down to lower timeframes to trade over the week you are still aware of where the market is trading. These higher time frame levels can be used as both entry point and target and are also useful when setting your stop loss level.
Our Telegram channel with analysis and signals!
