Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

morpheustrading

How Multiple Time Frame Analysis Increases Your Trading Profits

Recommended Posts

In the formative years of my trading career (late '90s), I frequently found myself scratching my head over an interesting problem.

 

Despite analyzing the hell out of stock chart patterns, ensuring the technicals looked quite favorable before buying, I still found my trades completely going in the wrong direction way too often.

 

Thanks to the help of a trusted trading mentor, I eventually discovered the problem; hyperfocusing primarily on the daily time frame.

 

Although the daily chart has always been pivotal for locating low-risk buy setups, my extreme focus on that single time frame was causing me to ignore the power of confirmation from longer time frames (such as weekly and monthly charts).

 

Put simply, I was missing the "big picture" and it was destroying my trading profits.

 

Are you...

 

Missing The Big Picture Too?

 

Every technical trader has his own specific approach to scanning chart patterns and locating potential buy setups.

 

Although I have my own, rule-based swing trading strategy, which has been thoroughly explained on my blog and nightly newsletter over the years, my trading system is just one of many types of successful trading methodologies out there.

 

Nevertheless, there is one trading technique you (and every trader) should always use, regardless of your individual trading style:

 

Multiple Time Frame Analysis

 

Multiple Time Frame Analysis (let's call it "MTF" hereafter) is an extremely simple, yet incredibly powerful concept, that can be applied to analysis of stocks, ETFs, forex, futures, bitcoin, and any other financial instrument that can be charted.

 

If you too have been making the same mistake of hyperfocusing only on the daily charts, read on to find out why you're missing the big picture of what's really happening with the stocks and ETFs you trade.

 

Exploring For Oil On Multiple Time Frames

One of the ETFs currently on my watchlist for potential buy entry is SPDR S&P Oil & Gas Exploration ETF ($XOP). Using MTF analysis, I will show you how this ETF actually landed on my swing trading watchlist.

 

Starting with a long-term monthly chart showing at least 10 years of data or more (if possible), we see that $XOP stalled at resistance of its all-time high a few months ago.

 

If you were buying $XOP based strictly on a daily chart with three to five years of data at that time, you probably would not have even seen the highs from 2008:

 

140121XOP1.png

 

Although $XOP pulled back after bumping into resistance of its 2008 high, the ETF firmly remains in an uptrend, above support of its rising 10-month moving average. Furthermore, the current base of consolidation is holding above the prior highs of 2011.

 

The next step in my MTF analysis is to zoom in to the shorter-term weekly chart interval, where each bar represents a full week of price action:

 

140121XOP2.png

 

On the weekly chart, notice the 10-week moving average is trending lower, but the price is still holding above the 40-week moving average. The 10 and 40-week moving averages are similar to the popular 50 and 200-day moving averages on the daily chart.

 

The current base of consolidation will take some time to develop, but as it chops around the 10-week moving average, the price should eventually flatten out and begin to tick higher.

 

Finally, let's use MTF analysis to drill down to the benchmark daily chart time frame:

 

140121XOP3.png

 

The $XOP daily chart shows last week's price action holding above the prior swing low. If this low holds, the price action can begin to set "higher lows" with the base and form the right side of the pattern (learn more about base building patterns here).

 

The next breakout in $XOP will likely be the one that launches the ETF to new highs on multiple time frames, which would be a very powerful buy signal.

 

Still, if you were to only glance at the daily chart of $XOP, without taking into account the weekly and monthly chart patterns, you might understandably make the mistake of assuming this ETF is not in a steady uptrend.

 

On the contrary, the "big picture" provided to you by MTF analysis definitely shows a dominant, long-term uptrend in place. Pullbacks and consolidations along the way, such as shown on this daily time frame, are completely normal.

 

Why Longer Is Better

 

Now that you understand the easy, yet crucial concept of MTF analysis, you may be wondering which individual time frame holds the most weighting, especially in the case of conflicting chart patterns.

 

Remember, in the beginning of this article, when I told you about that problem I had when I first started trading?

 

As I found out the hard way, a longer time frame always holds more weight over a shorter time frame.

 

In the best, most promising stock trading setups, all three chart time frames (daily, weekly, monthly) will confirm the patterns of one another.

 

But if that is not the case, just remember that a weekly trend is more powerful than a daily trend, while a monthly chart holds more sway than a weekly trend.

 

Of course, you must also keep in mind that longer time frames also take a longer period of time to work themselves out.

 

For example, daytrading based on a weekly chart pattern does not work. However, that same weekly chart is of paramount importance if you are looking to buy a stock as a core/position trade.

 

There's no doubt in my mind that utilization of Multiple Time Frame Analysis will substantially increase your trading profits...but only if you make the decision right now to start applying this underrated technique to all your stock chart analysis.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Similar Content

    • By adamal7
      Hello guys,
      I'm starting to swing trade commodities, especially soft commodities (corn, sugar, coffee, cotton, soybean, ...). I'm also checking gold and oil.
      My problem is I'd like to know what is the best broker for trading those markets (regulated, large commodity choice) ? For CFD trading.
      I'm thinking of IC MARKETS who are very good with forex and have good trading conditions.
      The concern I have is that I need a broker that offers MT4 as a platform, and also I'd like to be able to open mini lots positions for a better risk management.
      As a swing trader, I'm less concerned by the spread but looking at the financing fees.
      Wish you have a nice day, and thanks in advance.
      Alexandre.
  • Topics

  • Posts

    • I use binance, Tickmill and Hotforex(trade their CFD products). Anybody else trading crypto as Cfds?
    • How do I use mobile app to request withdrawal of my funds to crypto wallet? Can you help me?
    • Agree with you. Keep yourself away from these things
    • Date : 16th July 2019. MACRO EVENTS & NEWS OF 16th July 2019.FX News Today Treasury yields steadied during the Asian session, with bonds erasing overnight gains and the 10-year yield now up 0.3 bp at 2.092%. JGB yields also backed up from lows and are down -0.1 bp at -0.129%, after returning from holiday, while yields declined in Australia and New Zealand after the minutes of the last RBA meeting showed the bank remains ready to adjust policy if needed. Stock markets meanwhile struggled in very light volumes as markets hold back ahead of key US data and earnings reports this week. On trade talks US Treasury Secretary Mnuchin said he and Trade-Representative Lighthizer may travel to Beijing if talks by phone this week are productive. The WTI future is trading below $60 per barrel and U.S. futures are posting marginal gains. In Europe, the GER30 future is currently slightly higher as are US futures, which UK100 futures are in the red, amid ongoing Brexit jitters as Boris Johnson, poised to succeed as PM next week, puts no-deal options firmly back on the table. Last week’s round of Brexit negotiators was reportedly one of the most difficult encounters of the last 3 years. Meanwhile JP Morgan, Bank of America, Goldman Sachs and Taiwan Semiconductor are among the companies reporting results this weeks. Charts of the Day Technician’s Corner EURUSD has been held between its 20-day Moving Average of 1.1295 and its 50-day Moving Average at 1.1242 since Friday. A 25 basis point Fed rate cut at the end of the month has been priced into EURUSD, and focus now may shift to the ECB, where further stimulus could be in the cards at its next meeting on July 25, keeping EURUSD capped for the time being. USDJPY broke earlier today its 20-day Moving Average at 107.95, after printing 8-session high from 107.80 during the overnight Asian session. The mixed risk backdrop has limited the pairing’s gains since last week, as Wall Street trades on either side of flat, and Treasury yields remain pressured. The July 5 low of 107.76 remains a floor for the asset, while next Resistance stands at 108.20 and 108.50 Main Macro Events Today Average Earnings (GBP, GMT 08:30) – Average Earnings excluding bonus for May expected to slightly increase at 3.2% from 3.1% last month. ZEW Economic Sentiment (EUR, GMT 09:00) – Economic Sentiment for July is expected to be released at -19.0 compared to -21.1 last month. Retail Sales and Core (USD, GMT 12:30) – 0.2% June retail sales gains are expected for both with and without autos, following 0.5% May gains for both measures. Unit vehicle sales ticked down to a 17.3 mln pace in June from an upwardly-revised 17.4 mln clip in May, and gasoline prices should provide a drag on retail activity given an estimated -3.5% figure for the CPI for gasoline. Real consumer spending is expected to grow at a 3.9% rate in Q2, following the 0.9% Q1 clip. Support and Resistance levels Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.