What Is Multiple Time-Frame Analysis?

Most technical traders in the foreign exchange market, whether they are novices or seasoned pros, have come across the concept of multiple time frame analysis in their market educations. However, this well-founded means of reading charts and developing strategies is often the first level of analysis to be forgotten when a trader pursues an edge over the market.

In specializing as a day trader, momentum trader, breakout trader or event risk trader, among other styles, many market participants lose sight of the larger trend, miss clear levels of support and resistance and overlook high probability entry and stop levels. In this article, we will describe what multiple time frame analysis is and how to choose the various periods and how to put it all together.

What Is Multiple Time-Frame Analysis?

Multiple time-frame analysis involves monitoring the same currency pair across different frequencies (or time compressions). While there is no real limit as to how many frequencies can be monitored or which specific ones to choose, there are general guidelines that most practitioners will follow.

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. When choosing the three time frequencies, a simple strategy can be to follow a "rule of four." This means that a medium-term period should first be determined and it should represent a standard as to how long the average trade is held. From there, a shorter term time frame should be chosen and it should be at least one-fourth the intermediate period (for example, a 15-minute chart for the short-term time frame and 60-minute chart for the medium or intermediate time frame). Through the same calculation, the long-term time frame should be at least four times greater than the intermediate one (so, keeping with the previous example, the 240-minute, or four-hour, chart would round out the three time frequencies).

It is imperative to select the correct time frame when choosing the range of the three periods. Clearly, a long-term trader who holds positions for months will find little use for a 15-minute, 60-minute and 240-minute combination. At the same time, a day trader who holds positions for hours and rarely longer than a day would find little advantage in daily, weekly and monthly arrangements. This is not to say that the long-term trader would not benefit from keeping an eye on the 240-minute chart or the short-term trader from keeping a daily chart in the repertoire, but these should come at the extremes rather than anchoring the entire range.