Forex Course

167. Multiple Timeframe Analysis – Key to your Success

Before defining what multiple timeframe analysis is, we first need to understand what timeframe in forex means.

What is Timeframe in Forex?

In the forex market, the timeframe shows the change in a currency pair’s price over a given period. For example, a 1-minute timeframe shows how the price of a given currency pair changes minute by minute, while a 1-month timeframe shows monthly changes in the pair’s price.

No matter which trading platform you use when trading forex, there are several timeframes provided. For example, the screengrab below of an MT5 platform shows the different timeframes provided to forex traders.

Therefore, in the forex market, multiple timeframe analysis is a chart analysis technique that involves observing a currency pair’s trend under different timeframes.

Importance of Multiple Timeframe Analysis in Forex

Another type of forex trader would employ a different timeframe analysis to determine their trade entry and exit positions. Any forex trader knows that the price of a currency fluctuates continuously. Thus, the trend observed in a 1-minute timeframe will be different from the 5-minute timeframe and so forth. The table below shows different timeframes for different types of forex traders.

In timeframe analysis for forex markets, it is advisable to adopt a top-down technique. This technique involves beginning your analysis with a larger timeframe, depending on your trading style, to establish the overall price trend. Subsequent smaller timeframes then follow to show how the observed trend can be broken down to find preferable entry points.

Let’s take a forex day trader, for example. Such traders do not hold an open position overnight. Thus, for their timeframe analysis, they would start with the 8-hour timeframe, then to 4-hour the 1-hour timeframe.

With multiple timeframe analysis in forex, the larger timeframes, like the 1-month timeframes, are used to show a longer-term trend of a currency pair. In a single glance, you can see how the pair has been trading for years.

GBP/USD 1-Month Timeframe Analysis

From the above 1-month chart of the GBP/USD, you can notice the pair’s longer-term downtrend from August 2014 to August 2020. Short timeframes are ideal for showing the more recent changes in the price of a pair. Most forex traders use shorter timeframes to find opportunities to enter a trade and identify ideal exit points.

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Forex Basics

Just How Much Does a Day Trader Earn?

Day traders typically buy and hold several positions per day for short periods of time, oftentimes from a few minutes to several hours before selling them. As the name suggests, this trading strategy mostly takes place during the daytime hours, and positions are usually closed before the end of each trading day. Becoming a full-time day trader has inspired many people to ditch their desk jobs in favor of flexible hours, the ability to work from home, and many other unique benefits. Of course, you would need to make a significant amount of money trading to be able to support yourself entirely if you were considering taking up this career. If you’ve considered becoming a day trader, you’ve likely wondered how much money you could actually make over a period of time. 

First, there are a few things you should know. If you want the best chance of success, you’ll have to start off with good education and knowledge about the forex markets. Know that starting without enough knowledge is one of the main causes of failure when it comes to trading. If you need resources, you can find articles, videos, webinars, seminars, and other sources of information online for free. The great news is that you only need to invest time into learning how to trade, it doesn’t require a monetary investment unless you’d like to participate in a paid learning experience, like a forex course.

Second, the amount of your initial deposit also influences the amount that you can make. A trader that makes a $5,000 deposit will have more buying power and will make more money than someone that starts off with $100. This doesn’t mean that you can’t start small, but you’ll want to keep this in mind when comparing how much other traders make to the amount that you want to make. It isn’t likely that you will be able to make enough money to support yourself without making a good-sized investment. Still, you can start small and invest more over time, take up day trading part-time, or allow your profits to build up to increase your investment power. Another solution would be to purchase a forex robot that could automatically trade for you if you can’t afford to quit your job just yet, or if you’d prefer to do both.

Now, let’s talk about how much money day traders actually make. The truth is that results can vary widely depending on a number of factors, such as:

  • The amount of money that is invested
  • Trading knowledge
  • Strategy and the use of indicators or other tools
  • Risk-management precautions
  • Leverage

As you can see, these factors have the potential to make a big difference in the numbers. However, we did find one example that could give you a basic idea of how much you might make: With a $30,000 deposit, 100 trades per month (5 trades per day/20 days per month), you could make around $3,750 per month, which comes down to nearly $1k a week. If you compare that with the salary at a regular job, you’ll likely find that trading will make you more money. Still, there are some problems with this example. It likely assumes that each trade is profitable, without going into detail about other measures that are used to minimize risk and so on. If your income is completely reliant on day trading, there is a downside in that the exact amount you make is never guaranteed. You might make extra money one week but find yourself struggling on a week when you need to pay rent or other important bills.

Our final advice for those wishing to become day traders is to do it but to be very conscious about how much money you can afford to invest and how much you could actually make. We don’t recommend quitting your job immediately. Instead, start off trading for a few months to get an idea of how much money you’re going to make personally. As you continue to trade and invest more money, you’ll likely find that your profits grow to the point that you can make a decent income from trading.