What is Multiple Time-Frame Analysis in Forex: When it comes to trading international currencies on the forex market, it’s fair to say that some pairings are more popular than others.
Take the EUR/USD, for example, which comprises the currencies of the world’s two largest economies and currently accounts for nearly 28% of total daily trading volumes in the global market.
What is Multiple Time-Frame Analysis in Forex
When you analyse this type of pairing, you may look to use multiple time-frame analyses. But what is this, and what are the key benefits to keep in mind?
What is a Multiple Time-Frame Analysis?
In simple terms, multiple time-frame analysis involves monitoring the same currency pair across different frequencies or time compressions.
Although there’s no real limit as to how many time-frames can be used to monitor pairings, there are some guidelines to keep in mind when adopting this type of strategy.
For example, using three different time periods often gives a broad enough reading of the marketplace and currency pair, while analysing more or less can be harmful to your chances of success.
More specifically, using fewer can result in a significant data loss, while leveraging more will be unnecessarily time-consuming and likely to deliver redundant information or analysis.
What are the Benefits of Multiple Time-Frame Analysis?
One of the main advantages of multiple time-frame analyses is that you can select three distinct time periods to suit your wider trading strategy.
For example, investors with a long-term outlook (such as swing or position traders) should target extended time-frames, in order to gain an insight into more relevant trends and analysis.
Conversely, scalpers and day-traders (who profit from real-time price movements and execute high volume orders during each 12 and 24-hour period) won’t find any advantage in analysing weekly or monthly arrangements, instead of benefitting significantly from 15, 60 and 240-minute time-frames.
By being able to target a few of the most relevant time-frames depending on your chosen currency pairs and strategy, you can access tailored analysis that translates into informed decision-making over time.
The Last Word
By creating a holistic approach that combines both your wider trading strategy and the three most relevant time-frames, there’s no doubt that you can dramatically improve the odds of making a successful trade.
Similarly, you can begin to understand and identify trends that may otherwise have remained untouched, allowing you to create a beneficial sense of determinism and become a far more efficient trader over time.
However, many traders continue to overlook this analysis method, particularly once they get started and are able to determine a specialised and relatively profitable niche.
