Multiple time frame (MTF) analysis is a method of technical analysis where currency price action is monitored using several time frame charts. A conventional multiple time frame analysis will involve the use of at least 3 time frames. When deciding on a trade or investment, be it short, intermediate or long term, multi time frame indicator can help clear the noise and offer a balanced view. MTF analysis simply refers to the same chart with more than one time compression (e.g. daily, weekly and monthly). When both the monthly, weekly and the daily charts are in harmony, the chances of success can be greatly enhanced.
So, multiple time-frame analysis involves monitoring the same stock / index / commodity or currency pair across different frequencies (or time compressions). Typically, using three different periods gives a broad enough reading on the market – using fewer than this can result in a considerable loss of data, while using more typically provides redundant analysis.
If you have a strategy that is built around a certain time-frame, do not have any interest any other time-frames than that of the one your set-ups are built on, but we would encourage you to analyze other times as well.
The first step is to start with the longer-term time frame, say monthly chart. This is to determine the trend of the scrip. The eventual trade SHOULD be in the trend direction of this time frame. Such trades will have a greater degree of success than if it was taken against the direction of the trend seen on the monthly chart. The trend as seen on the monthly chart is less of market noise and more of true fundamentals at play. Monitoring where the market fundamentals have been pointing to in the recent past helps the trader understand what is happening on the monthly charts a whole lot better.
The second step is to look at the medium time frame, say weekly chart. This chart chronicles the moves within the larger trend. This time frame is a marriage between price action on the shorter and longer time frames. The weekly chart is where you should get your trades set up, and where you should be monitoring your trades when they are active.
The third step is the trade execution, which is done using the current time frame, say daily chart. Even though there is more market noise here, previous analyses done on the higher term charts as described above will ensure you are only in when the market noise is in your favor.
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Indrajit is a professional blogger and trading system developer. Amibroker expert, Wordpress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.