Why Do We Need To Trade Using Multiple Timeframes?

Many beginners start trading forex looking at one chosen timeframe. They bring along or develop an approach and start testing their knowledge and skills. Sooner or later traders discover that despite all efforts results seems to be random: at one time their trading system would work well, while the other time, seems like under the same conditions, it would fail…

What’s going on?

One of the potential answers may lie in the narrowness of the research done by looking at one timeframe and never knowing what is going on at the more superior level.

There are many forex systems that trade with more than 1 timeframe. Why? It is usually to accurately time the entry to make the trade a "high probability" trade. Some systems however only trade one timeframe such as daily systems as they look for broader and bigger moves in the currency market.

To improve the efficiency of our trading strategy. We see the major trend using a higher timeframe than what we intend to use & a lower timeframe to enter a trade. Say we want to trade using the daily charts. We take the weekly charts to see the major trend.

Suppose it's an uptrend in a weekly chart. We will tend to trade only long positions. We will use entries in the daily charts to enter long positions only. When sell signals are generated we will just exit our long positions. I.e. we don't short sell.

Suppose it's a downtrend in a weekly chart. We will tend to trade only short positions. We will use a entries in the daily charts to enter short positions only. When buy signals are generated we will just exit our short positions. I.e. we don't enter long positions.

Now that we are using two timeframes. Now coming to timing the entry of trades or adding additional positions (pyramiding). We can further use a hourly chart to time our entries. Suppose the weekly & daily charts are in a uptrend. We will enter a long position or an additional long position when a hourly chart gives us a buy signal. Suppose the weekly & daily charts are in a downtrend. We will enter a short position or an additional short position when a hourly chart gives us a sell signal. This timeframe would not be used to exit the trades. It's solely to improve the timing for entry. For exits we would use the signals generated in the daily charts.

The higher the timeframe the more importance it carries.

• 5 minute timeframe is more important than 1 minute.
• 1 hour timeframe is more important than 5 min.
• Daily timeframe is more important than 1 hour.
• Weekly timeframe is more important than daily etc..

The key to successful forex charts analysis lies in the habit to screen timeframes higher than the one you normally trade with. Two superior timeframes is just the right number. Screening more than that could overload traders with information, less than that might be not enough, but still better than nothing.

Let’s avoid philosophy again and go straight to common timeframe pairs.

Fist is the one you trade, second and third are suggested timeframes to check market major trends, important price levels and forming patterns on:

• 1 min => 5 min => 30 min
• 5 min => 1 hour => 4 hour
• 1 hour => 4 hour => daily
• 4 hour => daily => weekly

The main approach here is to start with a superior timeframe, conduct the analysis, identify the main trend and market turning points. Then go 1 step lower, continue the analysis while referring now to the major frame. Then descend to original chosen timeframe and identify trading opportunities that fit the analysis done on the global scale.

Seeing things from larger prospective help traders increase the rate of winning trades in forex.