Multiple Time Frame Analysis

Multiple time frames analysis equals using 2 chart time frames to trade stock indices - a shorter one used for trading & a longer one to check trend.

Since it's always good to follow the trend, in Multiple Time Frame Analysis, the longer time frame gives us the direction of the long-term trend.

If the long-term market direction supports the direction of the smaller time frame then the probability of being profitable is greatly increased. This is because even if you makes mistake the long term trend will eventually save you. Also if you trade with direction of the market, then mostly you will be on the winning side, this is what this analysis is about.

Remember there's a popular saying by many Indices and stock market investors that says: "The trend is your friend' - never go against the stock market.

There are 4 different types of traders - all these use different charts to trade as explained below.

Examples of how each type of trader uses multiple Stock Indices time frames analysis strategy:

Scalpers

This group holds onto their trade transactions for only a few minutes. The scalper never holds on to a trade for more than ten minutes. With the objective of making small amount of pips profit: 5 - 20 pips.

A Scalper using 1 min chart wants to go long, checks 5 min chart, that resembles the one below, since 5 min show trend is moving up, then decides from the analysis it's okay to buy.

Day Traders

This group holds onto their trade transactions for few hours but not more than one day. With the objective of making quite a number of pips: 30 - 100 pips.

Day trader trading 15 min chart wants to go long, checks 1 H chart, that resembles the one below, since 1 hour highlights market trend is moving up, then decides from the analysis it's okay to buy

Swing Traders

This group holds onto their trade transactions for few days to a week. With the objective of making a big number of pips: 100 - 400 pips.

Swing trader using 1 H chart wants to go short, checks 4 hour chart, that resembles the stock trading example explained and illustrated below, since 4 hour highlights the trend is moving down, then decides from the analysis it's okay to sell.

Position traders

These are the traders who hold onto their trade transactions for weeks or months. With the aim of making a large number of pips: 300 - 1000 pips.

Position trader using the daily chart wants to go short, checks weekly chart, weekly looks like one below, since weekly portrays the trend is moving down, then decides from the analysis it's okay to sell.

How to Define A Trend

Using a trading system has Three indicators - Moving Average Cross Over System, RSI & MACD & uses simple guide-lines to define the trend. The rules are:

Upwards trend

Both MAs Moving Up

RSI Indicator above 50 Mark

MACD Above Centerline

Down-wards Trend

Both MAs Moving Down

RSI Indicator below 50 Mark

MACD Below Center-Line

For More details about this system read: How to Generate Trade Signals with a System.