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Multiple Time-frame Analysis

Hello Traders, here is a short article here for you about checking your set-ups on multiple time-frames. I know that many of you if you have a strategy that is built around a certain time-frame, do not have any interest any other time-frames than that of the one your set-ups are built on. However,  I would encourage you to analyze other times as well, and in this brief article, I am going to explain why it is important and show you a few examples of how not being diligent in my pre-trade analysis has hurt me in the past.

Why multiple time-frame analysis is so important:

  • Key levels of support and resistance may exist near your trade, but that can’t be seen on the time-frame you are trading on.
  • The trend may appear differently on the time-frame you are looking at than where the long-term trend is really moving.
  • Price may appear to have room to move on a one-time frame where it is actually quite over-extended on a lesser time-frame.
  • You can make a much more precise entry point on shorter times than on longer ones.
  • You may take a great trade in a short time-frame  and hit your target, but not realize you could have let it run for a way bigger profit due to the longer-term trend

So there are quite a few things that can  hurt you as a result of not looking thoroughly at multiple time-frames, but in this article, I am going to focus on two of them:

– The trend being against you in a longer time-frame

-Price being over-extended on a shorter time-frame

1st. Many times, I will be trading my Bollinger Band Strategy on the 4hr or 1hr chart. I will have a very nice set-up and take the entry based on my criteria; however, I may forget to analyze the daily and weekly (often because I am excited to see my set-up and cannot contain myself enough to be patient) and find that it is very counter-trend even though on the 4hr or 1hr it looked like a pretty decent channel.

Let me show you a trade that hurt me quite a bit due to lack of Multiple time-frame analysis (click to enlarge):

time frameSo on to the 4hr where I made my entry, the trade looked perfect. It was a choppy-looking market with a lot of downward movement. Nothing on the 4hr made me believe that this trade wouldn’t work out great, but obviously, it was a loser. Now, if I would have looked at the daily chart, I would have seen that I was actually making my short entry in a very strong uptrend and therefore should not have made that entry. Let me show you what the daily looked like during that entry:

Okay, so now we see that this was a horrible trade. I had no business taking a short position where I did on that daily chart, but because I didn’t take the time to do full analysis prior to making my entry, you can see that I lost money. This is a prime example of the trend being against you when you don’t realize it. You must watch for that–ALWAYS look for the longer trend when you are making an entry.

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The next example I want to go over is when price appears to have room, but is actually quite ready to reverse on a smaller time-frame. In this example, you may not actually lose the trade because the longer term entry is on your side, however, it may put you in a bad situation where your behind in the trade 15 or 20 pips very early in the trade.

So here is another Bollinger trade that I took, but didn’t pay close attention to the smaller time-frame.

So, here we see my entry, which matches my criteria perfectly, but I get a rather large retracement almost immediately after I enter. The reason this happened is simple: although price had plenty of room to move on the 4 hr, it was over-extended on the hour and therefore had to bounce up in for “breathing room” before it could continue downward. Here is that hourly chart:

Okay, so you can see from this chart that where I took my entry was in a place where a price was over-extended on the shorter time-frame. If I would have seen that before the entry I could have waited for the hourly retrace and made my entry at a MUCH better price. Note that when a price is over-extended it does NOT always bounce up; however, is it way too big of a chance to take when you’re trading.

I hope this helped you better understand why multiple time-frame analysis is so important and how it can help you gain extra pips and save yourself from losing them.

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About Louie Lewis

Louie Lewis
Successful forex trading starts with you first. Then comes the actual strategies and techniques. I have been involved with forex and forex trading for a few years now. It is a wonderful way to build wealth. The learning never stops and I want to help others along their journey into this wonderful market of opportunity.

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