Hello traders – For this post we will focus on the practice of lining multiple charts to see if they tell us the same story. The more in tune the charts are the better probability of a profitable trade. As a trader that is our goal!
So what exactly are we taking about?
The first question is – what’s multiple time frame analysis?
The short answer is – it’s the practice of looking at a stock chart on multiple time durations.
Why do we do this? Well, to find a common trend and congruent price action. When this is done you have essentially recognized whether buyers or sellers are in control and can trade accordingly with conviction.
This practice can be employed regardless of whether you are daytrading, swing trading or even long-term investing.
Say for example you are daytrading and use the 5 minute chart as your primary duration to find trades and entry/exit points. Are your odds of success higher or lower if you take trades in the direction a stock is trending on a larger time frame, say the 15 minute chart? The clear answer is higher as that’s the current direction that price action is being controlled.
It’s always easy to trade in the direction of the tide and just ride the waves into profits.
What’s more – Multiple times frame analysis doesn’t just help us find an overall trend in a stock’s price action. It can also help us find trades and better entry and exit points we might not otherwise see on just a single time frame.
As traders we look for trading patterns to find trade setups. A stock may be trending, but we don’t just jump into that in the middle of the move without an entry trigger. Well, on a shorter time frame you may get an entry signal from a pattern, such as a flag pattern, that is just part of the stock’s move on a larger time frame.
In that instance we can take a trade we would not have otherwise found looking at just one time frame. There are many other examples and uses of multiple time frame analysis, but this post should atleast give you an idea on how to use it and why it’s valuable.
Multiple time frame analysis is one of the many topics covered extensively in the Active Trading Blueprint. In this course you will learn, through several charting examples, how to line up multiple time frames in order to find higher probability trades. Click here to learn more Active Trading Blueprint
Remember, “Victory Loves Preparation”