Many professional traders are using very extensive methods in Forex trading, that includes the use of multiple time frames, and I do believe in this system. How to do it correctly?

Many professional forex traders are using very extensive methods that includes the use of multiple time frames, and I do believe in this system. To trade with multiple time frames in forex trading, traders will first look at a long term time frame, like monthly or weekly charts to determine the overall trend. It's pretty easy too actually, if the overall trend is up, then you should put a buy position, and if the overall trend is down, then put a sell position.

Next will be a shorter time frame, like 4H or Hourly chart to look for any trading opportunities. As I said above, if the overall trend is up, then you should put a buy position, but that does not mean you can't really put sell position. There will always be counter trend moves that provide opportunities to enter the trade, like in a strong uptrend, a minor downward retracement will be a potential trading opportunity.

Finally, we look at a shorter time frame like 15M chart to pinpoint exact entry. However, because I am a day trader, I do not look at daily charts and instead look at 4H and Hourly charts to see the overall trend. Next, I will check 15M and 5M chart to see if there is any trading opportunities. But again, it all depends on how long you are willing to hold your trade.

Multiple

What makes multiple time frames in forex trading so powerful is that it puts traders on the right side of the market while also pinpointing the highest probability entries available. In one of my favorite books by Dr. Alexander Elder, he explains about his 'Triple Screen' method in detail that is used for multiple time frame trading.

In Come Into My Trading Room: A Complete Guide to Trading, Elder wrote:

Triple Screen resolves contradictions between indicators and timeframes. It reaches strategic decisions on long - term charts, using trend following indicators — this is the first screen. It proceeds to make tactical decisions about entries and exits on the intermediate charts, using oscillators — this is the second screen. It offers several methods for placing buy and sell orders — this is the third screen, which we may implement using either intermediate - or short term charts.

Begin by choosing your favorite timeframe, the one with whose charts you like to work, and call it intermediate. Multiply its length by five to find your long term timeframe. Apply trend following indicators to long term charts to reach a strategic decision to go long, short, or stand aside. Standing aside is a legitimate position. If the long term chart is bullish or bearish, return to the intermediate charts and use oscillators to look for entry and exit points in the direction of the long term trend. Set stops and profit targets before switching to short term charts, if available, to fine - tune entries and exits.

Let me give you an example. To trade this strategy, the trader would begin with a favorite timeframe, like a 4H chart, and call it intermediate. To get the long term chart, the intermediate chart would be multiplied by five (or 4, or 6). Therefore, the long term chart might be the daily chart (4H chart x 5 = 20H, 20H is close to Daily chart). To get the short term chart, the intermediate chart should be divided by 4-6. So, the short term chart in this case might be a Hourly chart (4H chart ÷ 4 = 1 Hour chart).

The long term chart should be the first screen; you have to focus on the trend – use indicators like Moving Averages, MACD, or trendlines to decide whether to go long, sell short, or stay out of trading due to a lack of trend. The intermediate chart is the second screen; use oscillators like Stochastics or RSI to identify a pullback entry zone. Finally, in the short term chart, the third screen, you look for a support/ resistance breakout in the direction of the long term trend to pinpoint the trade entry.

This Triple Screen strategy is really good. I always do it; check the higher time frame in the first place before you enter the trade on a shorter timeframe. Forex trading only with one time frame is like blind trading, you will not know what is happening in the bigger picture.

I hope this article will be useful for you. Good luck in your trading!

 

Rico FY

Forex Day Trader