Technical Analysis Using Different Timeframes

The majority of traders monitors and analyses a security on a single time frame. However, a much more in depth research and analysis is an important factor in trading which can be accomplished by scrutinizing the same security across several time frames. This kind of research is referred to as multiple time-frame analysis (MTFA) which involves technical analysis of the same trading instrument across different time compressions.

The entire process of multiple time frame analysis begins with the exact identification of trend which can be primary/long, intermediate and secondary/short. Once the trader determines the overall market direction on higher time frames, he then looks for entry points on lower time frames. Since a security simultaneously moves through multiple time frames, it is both necessary and useful for traders to analyze some of those time frames to identify the “trading cycle” of the security. On the other hand, it is of vital importance to choose the correct time frame.

How to Make Multiple Time Frame Analysis

A security can exist on several time frames, including one minute, 15 minutes, hours and a day. From this it follows that different traders can express different opinions on the way a security trades and each of them can be right. For example, trader A may see that USD/CAD is on an uptrend on the 6-hour chart, while trader B who trades on a 5-minute chart, may see that the same currency pair just moves downward. Thus, both of them could be right. As it becomes obvious, this poses a problem and causes confusion among traders, especially when they analyse a 6-hour chart and see a buy signal, then look at the 1-hour chart and see the price slowly moves down indicating a sell signal.

A long-term trader who may hold positions for several months will find it senseless to use a 5-minute or a 150-minute chart. And, conversely, for a day trader who holds positions for maximum a day, a daily, weekly or a monthly technical analysis would be aimless. This, however, does not mean that a long-term trader would not benefit from considering a 150-minute chart, or, in the same way, a short-term trader would not benefit from keeping an eye on a weekly chart. Such actions would help them to become more informed of the market and be better prepared against unexpected market movements.

While choosing the time frame to perform analysis, you should not consider time frames too close. For the analysis to be helpful it is recommended that they would be at least four times apart.

Traders who use multiple time frame analysis can be of several types, including

A swing trader who mainly concentrates on daily charts but can also use weekly charts to determine the primary trend, as well as use 60-minute charts to identify the short-term trend.
A day trader who focuses on 15-minute charts, but can also use 1-hour chart to determine the primary trend, as well as use a 5-minute chart to identify the short-term trend.
A long-term trader who focuses on weekly charts but can also use monthly charts to determine the primary trend, as well as use daily charts to identify entry and exit points.

Actually, using analysis across different time frames provides enough data to read the market. Using fewer periods of analysis can result in the loss of data, while the usage of more time frames can provide redundant analysis.