Multiple Time Frame and Trends

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Multiple Time Frames & Trends

Trend
Trends can be classified as primary, intermediate and short term.

However, markets exist in several time frames simultaneously. As such, there can be conflicting trends within a particular currency depending on the time frame being considered. It is not out of the ordinary for a currency pair to be in a primary uptrend while being mired in intermediate and short-term downtrends. EMA-4-MTF-Strategy take this approach into account for the best trading outcomes. We tend to see the predominant trend using a higher time frame than what we intend to use to select positions, and we tend to use a lower time frame to actually enter the trade, hence the term “multiple time frame trading”.

General Rule
The selection of what group of time frames to use is unique to each individual trader. Ideally, traders will choose the main time frame they are interested in, and then choose a time frame above and below it to complement the main time frame. As such, they would be using the long-term chart to define the trend, the intermediate-term chart to provide the trading signal and the short-term chart to refine the entry and exit.

Deviation from sample
Typically, beginning or novice traders lock in on a specific time frame, ignoring the more powerful primary trend. Alternately, traders may be trading the primary trend but underestimating the importance of refining their entries in an ideal short-term time frame.

What time frames should you be tracking?
A general rule is that the longer the time frame, the more reliable the signals being given. As you drill down in time frames, the charts become more polluted with false moves and noise. Ideally, traders should use a longer time frame to define the primary trend of whatever they are trading.

Once the underlying trend is defined, traders can use their preferred time frame to define the intermediate trend and a faster time frame to define the short-term trend. Some examples of putting multiple time frames into use would be:

* A scalper could trade off 1min. charts, use 5 min. Or 15 min. to define the primary trend and a 10 sec. chart to define the short-term trend.
* A swing trader, who focuses on daily charts for his or her decisions, could use weekly charts to define the primary trend and 60-minute charts to define the short-term trend.
* A day trader could trade off of 15-minute charts, use 60-minute charts to define the primary trend and a five-minute chart (or even a tick chart) to define the short-term trend.
* A long-term position trader could focus on weekly charts while using monthly charts to define the primary trend and daily charts to refine entries and exits.

The selection of what group of time frames to use is unique to each individual trader. Ideally, traders will choose the main time frame they are interested in, and then choose a time frame above and below it to complement the main time frame. As such, they would be using the long-term chart to define the trend, the intermediate-term chart to provide the trading signal and the short-term chart to refine the entry and exit.
One note of warning, however, is to not get caught up in the noise of a short-term chart and over analyze a trade. Short-term charts are typically used to confirm or dispel a hypothesis from the primary chart.

See further:
http://www.investopedia.com/articles...timeframes.asp
http://www.investopedia.com/articles...-timeframe.asp
http://www.tradersedgeindia.com/multiple_time_frame.htm

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