Lets say you have two possible trades coming up on two different currency pairs.
On the first one, both, the long term chart and the short term chart are connected, pointing up.
On the second one however, there is a little bit of discrepancy between the different timeframes, long term charts are pointing up, while the short term chart are pointing down.
Which trade would you feel more comfortable taking?
That’s right… the first one.
It’s all about being in the right side
Why is that?
Because when everything is connected, the market is more likely to continue in the intended direction.
In the other hand, when something is not clear, or there is discrepancy between different timeframes, well… its not that likely to continue in the intended direction.
Is it still possible to continue in the intended direction?
Of course it is possible. Everything is possible, even the: 1m, 5m, 15m, 30m, 1H, 4H, 1D, 1W and 1M are in line the market could move against the intended direction… what is important here is the likelihood, not the outcome of your trade.
Wait a minute, are you saying the outcome is not important?
Thats what I said.
It doesn’t matter if you win or lose one particular trade. What is really important, is to always be in the right side of the probabilities.
For instance, if in the next 10 trades you only trade when both, the long term charts and the short term chart are connected you’ll have better chances than if you only monitor the short term charts.
Ok, now to the multiple time frame analysis
USDCAD Weekly Chart
Lets start with the weekly analysis. Here is the weekly chart:
What do you think about this chart?
It’s clear isn’t it? The USDCAD was rejected from the bottom of the range, and it is likely to continue its way up.
Until when? Until it reaches the next LT resistance level which is at 1.0415
Good… weekly chart: check.
USDCAD Daily Chart
And here is the daily chart:
This one is also in line, it’s been making higher highs, so it is more likely to continue it’s way up.
Daily chart: check.
USDCAD Hourly Chart
Here is the hourly chart:
Great, it just broke through an important resistance level (upper green level around 1.0080).
And this one is also connected with the higher time frames.
Hourly chart: check.
Weekly chart: up
Daily chart: up
Hourly chart: up
All of them are in line, so I’m going to look for long opportunities. Which is actually what I’m doing right now.
You can use what ever entry system you choose: indicators, candlesticks, Fibonacci, etc. But please, just look for long opportunities. For instance:
- Could have been a resistance break out trade
- Wait for a retracement to the support level at 1.0080
- Wait for a moving average cross over
- Etc, etc, etc.
What ever the entry you use, it gives you confidence to know that the USDCAD is more likely to continue its way up, therefore you’ll be safer by only looking for long opportunities.
Do you always perform a multiple time frame analysis before you trade?
What do you think its more important: the analysis previous to your entry or the entry system?
I’m curious about your answer to the second question.
Please leave your answers in the comments below.