Most traders often make their trading decisions based on a single timeframe only. They spend all their energy on technical analysis in their chosen timeframe, without thinking about what might happen on higher timeframes. This may work well in some cases, however, a more solid approach will require you to analyze multiple timeframes at once. Analyzing multiple timeframes can be complicated. One of the main reasons traders avoid analyzing multiple timeframes is due to the conflicting information that sometimes results from this approach. This confusion causes many traders to suffer from that. Today we will discuss how to analyze multiple timeframes and their application in trading.
What is multiple timeframe analysis?
Analyzing multiple timeframes in trading is a powerful concept that helps identify major trends and understand market dynamics. By observing different timeframes on the same instrument, traders can increase the probability of success and minimize risk. Support and resistance levels, price action, and analyzing multiple timeframes remain relevant and effective in trading because they are based on market logic. They have worked in the past, they work in the present and will continue to work in the future because they are based on market logic. Using three different timeframes provides the best combination for understanding the market. The first timeframe to consider is our trading timeframe. The second timeframe is the higher-level timeframe. It is usually 4 to 6 times larger. For example, if your trading timeframe is a 5m, the higher timeframe should be a 30m. This timeframe provides a view of the market context as a whole. You can use this timeframe to check major support and resistance levels and overall trend direction. Additionally, we also analyze a smaller timeframe which allows us to more accurately find an entry point. It’s a 1m timeframe. With this timeframe, we can find potential entry points by detecting order blocks of big players. We will tell you how to detect big players’ order blocks in future articles. However, no trading method will accommodate every market situation and there is no best timeframe. And there will always be uncertainty in trading.
Modern markets are quite efficient and therefore, as traders, we should try to utilize every opportunity to analyze the market for profit. Analyzing multiple timeframes provides you with a way to improve your statistical advantage. A key concept in trading is trend trading. But how do you recognize a trend? And that's what multiple time frame analysis can help you detect. In addition, our trading advantage can be improved by better timing of market entry, and this is another advantage that can be gained through proper analysis of multiple timeframes.