What is multiple time frame analysis? (MTFA)
Multiple time frame analysis is a fancy word for looking at the same currency pair through different time frames. Example: the 4 hour and 15-minute charts. By looking at the same pair from different points of view we can get a better idea of the current market environment and maybe a glimpse at the future.
Benefits of MTFA
According to DR. Van Tharp trading with the bigger picture in mind is one of three characteristics that make a great trader. By using multiple time frame analysis we can zoom out and approach the market from a bird’s eye view.
Using MTFA separates the most seasonal traders from the rookies. It is a core concept that gets drilled into traders at a fundamental level. Newbies often develop trading strategies without taking MTFA into consideration.
It is one of the few tools that can be used to dramatically increase your statistical edge of making good trades. Traders will often pick up significant support and resistance lines, and other important price patterns when using MTFA.
How do you find out what time frames best suit you?
Every trader has a different personality and it’s important to remember that when looking for a time frame that suits your style. A good way to find a suitable time frame would be to consider what makes you feel comfortable. Below is a short description of popular time frames:
- The Real Rock and Rollers (1min – 5min)
For the fast paced risk junkies that like to trade from the hip and ask questions later. These kinds of traders tend to love the 1min – 5min time frames. They are classified as scalpers (Rock n Rollers). They try to take very short term views with high leverage and walk away with plus minus 20pips per trade.
- 15 to 30-minute time frames tend to include intraday traders. These two time frames are for traders that cannot handle the stress of the 5 min but still enjoy the fast paced environment.
These traders fall into the swing trader category and slowly start to shift into position trading. You can easily trade more than one currency pair, share or chart using this time frame.
These are long term traders that prefer low risk and like to take advantage of the swap rates. This time frame generally produces a small amount of buy and sell signals. This style requires patience but also tends to have the highest return per successful trade.
So how do I set it up?
Having 3 different time frames is an ideal figure as anything less leaves you with too few bullets in your barrel and more than 3 leave you with too many conflicting ideas.
When you encounter a trade idea that is in line with all three time frames you increase the chances of it being a successful trade.
The Golden Rule:
Larger time frames are always more important than the smaller ones as it takes more momentum and bigger movements in the market to effect changes on this large scale.
- Beginner 101: identify what time frame best suits your needs before you continue. This can be achieved by using demo accounts or paper trading.
- MTFA is one of the core concepts that traders need to remember and keep in mind.
- The size of your account is important when selecting a time frame. For example, longer time frames can require more capital to compensate for riskier exit points/ stop losses.
- After getting a bird’s eye view of the market you can zoom into a closer time frame and try to spot better entry or exit points.
Example of using MTFA:
When I analyse a currency pair I will swap between the 30 minute, 4hour and daily charts to spot strong support and resistance lines, price channels and other price patterns to ultimately formulate a trading idea.
I can then base my trading idea on the 4-hour chart knowing that the daily chart pattern is in my favour. I can then go to the 30-minute chart to try and spot a better entry price.