MTFA: Multiple Time Frame Analysis in Forex Trading
Many traders make a big mistake by concentrating on only one chart and not paying attention to other timeframes. Sometimes this mistake can be worth a deposit. The habit of analyzing several time frames before the transaction will save the trader from concluding unprofitable transactions and the loss of finance. This concept is suitable for trading currencies, as well as stocks, precious metals, and any other assets.
Why You Need to Analyze Several Timeframes
By analyzing several timeframes, a trader can increase the number of profitable transactions and reduce risks on the exchange. The tactic is to analyze the price movement of the same asset but at different periods. On higher time frames, the general direction of the market is determined. While on the younger timeframes, points are searched for entering the market. This technique is suitable for working both in the direction of the trend and against it.
Let’s consider an example. When trading on an Alpari website on a 15-minute chart, an additional analysis of the 30-minute chart will not provide useful information. The difference between these periods is minimal, so the graphs will not differ much. But on the hourly chart, you can already identify clear trends and find the direction of the global trend. If you are analyzing a 5-minute chart, then the senior timeframe for analysis should be no less than half an hour.
Analysis of several time frames provides a broader view of the trading situation in the market. When evaluating only one chart, the trader overlooks a large amount of data.
Another reason why you need to take into account the data of a higher timeframe is that players trade it with large deposits. Accordingly, they set the main direction of the price concerning the younger chart. Following this direction, a trend or anti-trend will be formed. Therefore, if there is a pronounced uptrend on the older chart, then you should not conclude transactions for sale in a shorter period since most of them can go into the red.
For example, traders often rely on the data of a higher daily timeframe when trading on Forex. It helps to determine the direction of the transaction with intraday correctly.
In What Order to Analyze Time Frames
Some traders make a mistake by adding all timeframes to the chart at once. This leads to a long analysis, confusion, and overload of the workspace of the terminal or web platform. Therefore, for simultaneous analysis, it is recommended to use no more than three-time frames.
When trading on Forex, three TFs are usually used:
- Medium-term for transactions.
- Short-term for finding stop loss and take profit points. It should be four times less than the medium term.
- Long-term to determine the global trend.
For example, if transactions are concluded on a 4-hour chart, then stop-loss and take-profit points can be searched on the hourly chart, and the daily timeframe can determine the general trend.