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Multiframe analysis

Education
FX:EURUSD   Euro / U.S. Dollar
Multiframe analysis is when we analyze the same currency pair or other asset on several timeframes at once.
You know that any price can be seen on a chart:

Daily
hourly
15 Minutes
5 Minute
1 minute

We have plenty of opportunities to study the behavior of the same price. And it is the multiframe analysis that will allow us to do it correctly and efficiently.

There are quite a few trading systems where the daily or even weekly charts are taken as the basis. Does it mean that sets on higher timeframes are not applicable on small ones? Not at all. That is exactly what we need.
Let's say you saw that EUR/USD is in a downtrend on the 4 hourly chart by drawing a trend line .

However, your main trading chart is a 5-minute chart and you see perfectly well that the price on it goes up/down, and the trend line from the 4-hour timeframe is hovering far above. And what to do with it, on what timeframe to look at?

Traders often get confused with this. They see a sell signal on the 4-hour chart and a buy signal on the 15-minute chart. What should we do in such situations? Let's figure out what timeframes should be used and how to perfume it.


Best timeframe
The question of which timeframe is better to trade is asked very often. And this question is always wrongly answered when a beginner trader chooses a timeframe that does not suit him psychologically at all.

Inexperienced traders want a lot of money at once in the shortest possible time. That is why they, naturally, choose the 1-minute or 5-minute chart. However, as time goes by, it turns out that these timeframes cause frustration and emotional distress to the majority of traders. The frenzied pace of price on these timeframes provokes incredible greed, turns off the brain and most lose money.

Some people are comfortable trading on the 1 hourly chart. You wait much longer, and there are much less signals to take. But there is much more time to analyze the market and there is no rush. And, of course, a frequent guest in terminals are several timeframes on one screen.

The whole point of the Dow theory is that we analyze the price from the higher to the lower timeframe and thus get a complete picture of the market. The timeframe is just a detailing of the price movement. Price chart is always the same. You can simply watch the price in the one minute or monthly chart.

When it comes to the main timeframe, it could be too fast or too slow. This is normal, and it should be. You will try them all anyway, so the question of a constant timeframe is purely rhetorical. Let's compare several timeframes, what their pros and cons are.


Long-term timeframes. These are the daily and weekly charts that give you a bird's-eye view of the markets. It’s for the real turtles.

Medium-term timeframes. These are mostly hourly charts. Much more opportunities compared to the daily and weekly charts, there are can be several trades per day.

Short-term timeframes. The timeframes, respectively, are 15 or 1-5 minutes.

When choosing a timeframe, you should also take into account the number of trades and your deposit. Remember that the lower the timeframe, the messier trades it provokes. Such emotional traps are one of the key reasons why people lose money in forex.

Psychological timeframe
The main thing you need to understand is that the trading timeframe is tailored to you and your personality. Different people = different trading timeframes. With experience you will have no problem finding a good TF for you. Before looking for signals and on lower timeframe, you should analyze:

4 hourly or even daily
1 hour chart

And for each, we need to draw support/resistance lines, channels, and what grandpa Dow requires of us. This is how you can identify reversals on, let’s say, a 15- minute chart. Because on higher timeframes the price encounters strong support or resistance. As you already remember, the larger the timeframe, the more reliable the resistance and support levels. When you see the big picture, the chances of successful trading decisions increase significantly. But with newbies it's the opposite. They set up a 1 or 5-minute chart and other TFs do not interest them at all.

The practice of multiframe analysis
We have already understood the essence of the analysis on different frames, it was also discussed in the theory of Dow. This is how we see the global price movement: long-term trends are formed on higher frames, and support and resistance are much more reliable on long-term TFs.

It all starts with choosing a trading timeframe, after which we go up the ladder to get the full picture. And the full picture is an understanding of what's going on with the market. The market has only two states: a trend and consolidation. Higher timeframe analysis allows us to figure out what entry and under what conditions to make a trade. Tunnel vision or a global view; the choice is obvious.

The best bundles of 3 timeframes
It's best to use three TFs:
The first one will show us the main trend, the big picture of the market; the second is a medium-term signal.
The third is the detailing of the second signal, here we will look for the exact entrance zone.
The most popular combinations of timeframes, depending on their level of detail, are as follows:

1, 5, 30 minutes;
5, 30, 240 minutes;
15, 60, 240 minutes;
1 hour, 4 hours, daytime;
4 hours, daily, weekly.

There must be a sufficient time interval between timeframes. Otherwise, instead of detail, you get a simple clarification that is not particularly useful.

To summarize
Multiframe analysis is a framework that complements the Dow theory and, in fact, is based on it. First you must choose a global timeframe, then learn how to detail it. Conversely, enlarge the smaller timeframes to get an overall picture of what is going on. Never enter into trades without checking the situation on higher timeframes. Otherwise, you risk getting stuck on one timeframe and will surely miss an important market movement.

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