Multiple Time Frame

When deciding on a trade or investment, be it short, intermediate or long term, multiple time frame analysis can help clear the noise and offer a balanced view.

Multiple time frame analysis!?! It sounds complicated and fancy, but it simply refers to the same chart with more than one time compression (e.g. daily or weekly). When both the weekly and the daily charts are in harmony, the chances of success can be greatly enhanced.

The essence of the strategy is easy: Use the higher time frame price activity to define the tradable trend as well as potential support and resistance levels.

Markets exist in several time frames simultaneously. They exist on a 10 minute chart, an hourly chart, a daily chart, a weekly chart, and any other chart. Traders often feel confused when they look at charts in different time frames and they see the markets going in several directions at once.

The market may look for a buy on a daily chart and a sell on the weekly chart, and vice versa. The signals in different time frames of the same market often contradict one another. Which of them will you follow? Most traders pick one time frame and close their eyes to others – until a sudden move outside of “their” time frame hits them.

Daily charts are great, but participants can get caught up in the move of the moment. Even though daily charts can contain random movements, they do have their strengths. Once an underlying trend is identified, daily charts can be useful to pick entry and exit points. On the other hand, weekly charts filter out the random movements and can help identify the stronger under currents that are driving the price.

The same idea applies if you are trading any security on a daily basis, in which case, the weekly bars will be the basis for the trend as well as the important support and resistance points. That is the foundation of multiple time frame trading. Besides the effectiveness of using a method based on a multiple time frame approach, another advantage is the method need not be complicated. A trader can make his or her method as simple or as complicated as desired.

The proper way to analyze any market is to analyze it in at least two or three time frames. If you analyze daily charts, you must first examine the weekly charts and so on.

Look at the daily chart of NSE Nifty below. What does it tell you. Most traders would say that it is just the beginning of a downtrend and would be happy to short the market all th way down. Well, most traders are not successful! To be successful in trading any market, one has to first examine the trend on a higher time frame.

Now look at the chart below of the same security. This is a chart of one time frame higher than the one above. What does it tell you? Simply, that the long term trend is bullish, and I should be looking to go long rather than short.

By incorporating the multiple time frame trading method in our newsletter services, you as our subscribers will take only those trades with the most profitable potential and to stay out situations where there is marginal or least profitable potential.