Introduction To Multiple Time Frame Analysis
Traders rely heavily on studying charts for clues of what price might be doing next in an attempt to gain an edge. Various types of trading charts provide us with a visual representation of price movement over time and traders can perform their analysis using their favorite time frames to suit their trading style e.g. larger time frames tend to suit traders that attempt to hold positions for an extended period of time and smaller time frames to day trade or even scalp with.
Using multiple time frames, combined into one strategy, is a great way to answer questions like:
1. What is the dominating trend?
2. What is the intermediate trend?
3. Limiting risk when entering trades.
Think of a time frame as a different lens or window that a trader can look at to get a different perspective of price action. The purpose of this article is to show you how you can incorporate multiple time frames to form the foundation of your strategy which can then be used to suit your own trading style.
Using 3 Time Frames
In this article, we will be using 3 timeframes, each of which will be used to achieve a specific goal and we will offer you a glimpse of how we use them together with our Exponential Profits System (EPS) course to find highly profitable trades with low risk.
We will have a look at the 4-hour, 30-minute, and 5-minute time frames as they work great for holding trades anywhere from a day to a couple of days, typically allowing us to aim for very large profits. Using these specific time frames work well for swing trading but it should
be noted that you could adapt these time frames to achieve different goals like purely day trading or even scalping.
Day traders could, for example, use a 1-hour, 15-minute, and 3-minute chart, while scalpers could look at a 10-minute, 5-minute, and 1-minute chart as long as each smaller time frame in line is around 4 times smaller than the larger one that precedes it.
Using our 4-hour chart we will be analyzing our larger trend direction and market structure while the 30-minute chart will be used to zoom into price action to decipher chart patterns and lastly our 5-minute chart will be used to pinpoint entries while limiting our risk.
1. The 4 Hour Chart
Above is a 4-hour chart of Crude Oil and it clearly shows that an uptrend is in place, defined by a series of higher highs and higher lows. These patterns are consistent with the principles of market geometry we have discussed in the past. We also drew in an ascending blue trend line connecting the higher lows with each other.
This is a very basic analysis, but what it tells us is that the trend is up and that we will only look for long positions until the price does the following:
a) Breaks our trend line.
b) Breaks previous market structure.
A glimpse at the chart above shows one such instance where the price eventually broke the upward sloping blue trend line and previous market structure as indicated by the red horizontal line. When this happens it could indicate a short-term or long-term change in trend and that we should not attempt any long positions for the time being.
4 Hour Chart Objectives
Using the 4-hour chart in our example can therefore be used to determine the “bigger picture” trend, what our directional bias should be, and warn us of a potential change in trend.
2. The 30-minute Chart
Above is our previous 4 hour chart but we marked a section of price action with a black box which clearly shows that some sort of correction took place there.
Using our second time frame in line, we get a chance to look at that same correction a bit closer so that price action may reveal some clues as to where this correction might end. On the 30 minute chart, we can start to do an in-depth analysis of chart patterns and decipher their internal structure, so that we can attempt to find the area where they might terminate before the major trend resumes again.
One way to decipher corrective patterns is to label them using Elliott Wave Analysis BUT this field of analysis can be very subjective and difficult to apply in real-time. We therefore only want to know which type of corrective patterns exists in wave theory and then use another
form of technical analysis to guide us in identifying the end of these corrections.
After we have covered the 5-minute chart, we will give you a taste of what is possible with our methodology in finding the exact ends of corrective patterns.
30 Minute Chart Objectives
Using our smaller time frame chart we get a chance to look at price action a little bit closer in an attempt to identify corrective patterns and determine the most likely areas where they might end.
3. The 5-Minute Chart
When we use 5-minute charts we do so to find low-risk entries when we spot reversal patterns at areas we identified on our larger time frames. The chart above shows one such type of reversal pattern that we call a bullish flanked doji. There are plenty of others that we follow but it is of crucial importance to us that they appear in the areas we want to trade.
Using the same reversal pattern we can see how it would have been possible to enter a long position using the 5-minute reversal signal.
5-Minute Chart Objectives
Using the smallest time frame in our strategy it becomes possible to zoom into price action even further and find clues as to where price might be getting ready to reverse following a correction. These clues are provided in the form of reversal patterns which allow us to take
trades with very little risk while aiming for profit targets located on our highest time frame.
Timing the End of a Corrective Pattern
The best way to have named this corrective pattern was what is called a Double ZigZag but this is easily done in hindsight, so what we like to do instead is figure out which correction we might be dealing with without worrying about having to be 100% correct and then use Market Geometry to guide us more accurately.
We use a pitchfork as our market geometry tool and in most cases, we prefer the Schiff setting. A pitchfork requires that the user connect 3 important points with each other to project future areas where price might find support or resistance. Using this method of analysis is great at finding the end of corrections and we mostly draw these pitchforks on our 30 minute time frame.
Look at where this correction ended! Right at the lower blue line of our pitchfork (called a lower median line).
Once you have more knowledge of corrective patterns, what they look like, and understanding their characteristics, THEN it becomes easier to combine them with tools like market geometry to determine where they are most likely to end before the dominant trend resumes its previous direction.
What we have shown you above is just one way how a trader can utilize multiple time frames to achieve an objective. Our EPS course objective is to teach traders to understand price action, how to determine a trend, where that trend might experience a correction, identifying which correction might be forming, finding the end of that correction, and then
entering trades with very low risk when the major trend resumes again which often leads to very large gains versus the little risk we take on.
We have only shown you parts of our strategy and there are many more exciting elements involved when trading what we teach, so if you are serious about making a difference in your trading then consider joining our Exponential Profit System. We will teach you about multiple time frame analyses and finally learn what it takes to become a consistently profitable trader.
All the best