In the foreign exchange market, most technical traders, whether they are experienced pros or novice, have come across the idea of multiple time frames analysis. It is the first level inevitable analysis and well-founded means of developing strategies and reading charts. It is completely forgotten when traders pursue authority over the foreign exchange market, due to this many market participants miss clear points of supports and resistance, lose sight of broader trends and watch high probability entry and exit levels.
The multiple time frames analysis involves the viewing of the same currency pair across diverse time frames. It usually follows a top-down approach in which traders gauge long-tern trends by looking at larger time frames and spot ideal entry points on smaller time frames. Traders conduct a technical analysis by using multiple time frames to accept or reject the trading bias.
There is no actual boundary as which specific ones to choose or how many can be monitored. Usually using three different time frames gives a wide-ranging enough data on the market while using fewer can result in substantial loss of data and using more provides dismissed analysis. The rule of four strategies is followed when choosing the three different time frames. It is very imperative to select the correct time frames when selecting the range of three different periods.
A day trader usually who holds trading position for hours or longer than a day would find advantage in 15-minutes, 60-minutes and 4-hour charts while long term traders who have a position for months will see an edge in daily, weekly and monthly time frames. It does not mean that short term traders would not benefit from keeping an eye on daily, weekly or monthly charts or long term traders from a 15-minutes, 60-minutes and 4-hour time frames in the selection.
Using multiple time frames analysis can significantly increase the chances of making a profitable trade, but unfortunately, numerous forex traders ignore the effectiveness of this technique. It is time for both seasoned and novice traders to revisit this technique because it is a simple way to ensure a successful trading position.