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This article is Part 4 of a series of 9 articles dedicated to help anyone to trade the foreign exchange.
Multiple time frame analysis (MTFA) is the inspection of trend indicators, starting with the largest trends and timeframes, and working backwards down through successively smaller timeframes to see how the smaller timeframes and trends feed the larger ones. When the smaller timeframes are in agreement with the larger trends you can enter a spot forex trade. If no trend exists the smaller timeframes and trends will, at some point, build a larger trends.
MTFA has been around for nearly 25 years. The MTFA method is applicable to stock and commodities trading, equity options and currency options. The method is applicable to any currency pair. We are respectful of the strong technical work of Kathy Lien and Brian Shannon outlining MTFA and their technical papers are available on the Forexearlywarning website.
MTFA works, it is that simple. Pips can be made and the method is effective, especially when larger timeframes and trends are traded for larger pip totals. Money management ratios also improve when you are entering a larger trend.
By applying MTFA to multiple forex pairs your odds increase again, this is because you can choose to trade the best and largest trend available in the spot forex and ride the trends longer.
In order to conduct and accomplish a multiple timeframe analysis on the spot forex you need the proper platform and a set of trend analysis tools and indicators to facilitate the process. Some tools are very expensive some are free. You must be able to analyze 10 to 20 timeframes per pair prior to conduct a complete MTFA on a currency pair. You also must analyze the top 15-20 traded currency pairs to seek out the best opportunity.
The first step when conducting a MTFA on a currency pair is to inspect the largest 3 or 4 trends. See what pairs have established larger trends, whether the trending pairs are at the beginning, middle or deep into the trend, which pairs are not trending (oscillating) and which pairs could be developing a brand new trend. If there is a pair that interests you check the next support and resistance area and set a price alarm. When the price alarm hits check the smaller timeframes to see if they are in agreement with the larger trends, and if so enter the trade.
You can use off the shelf trend indicators to conduct multiple timeframe analysis. Simple indicators like exponential moving averages are fine. Just apply them across multiple timeframes.
Is it possible to make multiple time frame analysis better?? I believe the answer is yes. Incorporating parallel and inverse analysis into the analysis as well as support and resistance to set price alarms for notification of momentum or possible entry point can all help.
Scalpers may find the method to be to their liking because you will never trade against the larger trends and potentially hang onto trades much longer. One of the biggest reasons people scalp is that they have no idea which direction the trend is on the pair they want to trade. Or they only look at one timeframe. Traders scalp the foreign exchange but statistics show that people who hang on longer and ride longer trends make the most pips.
Why do traders not use multiple timeframe analysis? Mostly because analyzing alot of pairs and timeframes takes time and people basically are lazy. Most scalpers only look at one timeframe and could possibly be trading against a larger trend, or a scalper may be at the beginning of a very large move and exit way too early. If you are near the end of a trend you may also enter a trade after a long move and be entering near the end of the trend. This is bad money management under any scenario. Scalpers need MTFA but people who would like to stay in their trades longer would, by nature require knowledge of MTFA.
MTFA analysis of the spot forex is here to stay. Traders worldwide are accepting and learning to understand the method. MTFA is a rigorous method or analyzing the forex. But it is not difficult to learn. When combined with parallel and inverse analysis is quite powerful. It can be applies to any pair using free tools available on the internet from many spot forex brokers.
About the Author:
About the Author:
Mark Mc Donnell is the lead trading plan writer for www.forexearlywarning.com, an inexpensive trading plans service available to all spot forex traders. He is also the developer of www.theforexheatmap.com.
He has many years of experience trading stocks, equity options and the spot forex. He has spent the last four years of his career devoted solely in studying the movements of the spot forex, conducting trend analysis, and determining how this impacts retail level forex traders.
© Copyright 2008
Article Source: ArticlesBase.com – Spot Forex Trading Part 4: Multiple Timeframe Analysis for the Spot Forex
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