Forex Education - Multi Time Frame Strategy in Forex Trading
What is Multi Time Frame Strategy in Forex Trading / Trading Multiple Time Frames In FX
This is a very popular trading strategy with a high accuracy. The system assumes the use of 3 timeframes. The first time frame is the longer time frame and its sole purpose is to establish the long term trend. It acts as a filter preventing you from taking trades against the trend so you are left with high probability trades in the direction of the dominant trend. If there is no trend you simply don’t trade. Identifying the trend should be very easy just visualising recent price activity but you can also use the slope of a moving average (55 ema). Dr. Elder who is the inventor of this strategy suggests using the macd to identify the overall trend.
The second time frame (intermediate) is used to identify overbought/oversold conditions. Assuming the the first timeframe tells you that there is an uptrend you are looking for oversold conditions so you can buy low/cheap. For this purpose you can use an oscilator like the stochastic oscilator or the rsi wichever suits your trading style better.
Once you identify an oversold condition you are now looking to go long so you go to the third timeframe to pinpoint the best possible entry. What you are looking for is a breakout in the direction of the trend.
For stop losses you can use the most recent low on the intermediate chart and for profit target i suggest using a combination of fibonacci expansions and pivot points rejection. For example a fibonacci retracement of 50% points to an expansion of 138.2% to 161.8% of the respective move. Combine this with piot points and if you find a confluence that should be your profit target.
Example of multiple time farmes :
- daily chart
- 4h chart
- 1h chart
or
-weekly chart
-daily chart
-4h chart
The only thing you should know when choosing your time frames is that the difference between them should be a factor of 4 to 6.