Multiple Time Frame Analysis By Abe Cofnas

Multiple Time Frame Analysis By Abe Cofnas

One of the most important techniques in analyzing the forex market and in gaining confi dence that the trade you are about to make is a good one, is using more than one time frame to look at price movements. You cannot obtain a full understanding of what the
price action is doing by just looking at a day chart or trading on the basis of any single time frame.

One of the most important techniques in analyzing the forex market and in gaining confi dence that the trade you are about to make is a good one, is using more than one time frame to look at price movements. You cannot obtain a full understanding of what the
price action is doing by just looking at a day chart or trading on the basis of any single time frame. No matter how many indicators you use, it’s always necessary to look at the patterns from multiple time periods. Each time interval generates new information and patterns that may provide new insights about market sentiment. Too often, the new trader adopts a favorite time frame, such as the hour chart, and ignores the others, instead relying on technical indicators. Such an approach is very limited.

Which time frames should you look at? Although there is no definitive rule, you should view at least three different time periods. If you use a day chart for the big picture, a 4-hour and then a 30-minute chart is a good combination. If you use a 4-hour chart to assess major trend directions, then using 1-hour and 15-minute charts makes sense. A good rule of thumb is to shift to a lower time frame until the pattern changes. You can also shift up to a higher time frame to identify larger resistance and support levels. In a real sense, each chart contains its own world of price action. When you compare different time periods, you can see if the same patterns are being sustained. If there is consistency between the day, 4-hour, and 30-minute trend lines, this will be an important indicator in and of itself.

Note: Please see Abe’s book “Understanding Forex: Trading to Win” for the remainder of the chapter. Copies can be obtained from the Freebie section of forexhound.com