Many beginners only look at the timeframe that they are trading on, without paying attention to bigger timeframes that show the general direction of the market. Multiple time frame trading (MTF) involves considering and analyzing the market in different timeframes in order to get a general idea of what is happening in bigger timeframes, along with an idea of where the overall market energy is headed. This more in-depth approach is considered to be the most profitable type of trading by many experts.
The concept of what makes MTF more successful is pretty straightforward. If you’re only looking at a single timeframe, you’re actually ignoring the more powerful trend, which is where the majority of traders are trading, thus leading you to trade against the trend. It’s important to remember that larger financial institutions, big banks, and institutional traders place billions of dollars’ worth of trades on higher timeframes, and you’ll see stronger support and resistance levels on those larger timeframes. Therefore, many traders believe that MTF analysis provides the best analysis possible for currency pairs and that it is the best way to set yourself up for success, considering the market’s unpredictability.
MTF Analysis Objectives
MTF has two main objectives:
- To Increase the Chances of Trade Success
As we mentioned, one of the main reasons why traders adopt MTF analysis is because it is believed to provide the best setup for success. This is because MTF considers different timeframes, including higher timeframes with more traders and big institutions, thus providing us with a better idea of the trend.
Example 1: (Above GBPAUD H1) The market was in a Down Trend. We drew three possible support and resistance levels to trade it, yet the market did not take them into account, broke them, and moved upwards instead, which is represented by three circles. We then opened the same pair on the daily chart, and it suddenly becomes clear as to what happened.
Example 2: Initially, we see on the daily chart that EURGBP is in an uptrend. However, the H1 chart shows that it is in a downtrend, meaning that both charts are not aligned. We will need to wait to enter the market until both charts are aligned. Once this happens, we can enter the market with a higher chance of success.
- Lowering Your Risk
While MTF offers traders a better chance of success, it can also lower the overall risk you’re taking when entering trades. To do this, traders use two charts. For example:
- If your trade is set up on the H1 chart, you’ll be able to use the M15 chart for market entry.
- If your trade is set up on the H4 chart, you’ll be able to use the H1 chart for market entry.
Whenever you’re choosing timeframes, you should remember that the entry chart should ideally be 3-4 times smaller than the initial setup.
Example: (Above EURGBP H1) We see a trade setup where the market is at a key support level with our SL at 28 pips and our TP level at 33 pips. Our risk to reward (RR) ratio is approximately 1:1. However, on the M15 chart, that same RR ratio becomes 1:3 after our SL becomes 13 pips and our TP level increases to 45 pips. The difference from the M15 chart actually allowed us to lower our risk while increasing our reward by nearly 2.5 times.
In BMFU, we use MT4 analysis differently, by analyzing the market in three different timeframes:
The Primary Chart
The Primary Chart, also known as the Long-Term Chart, is the first basic chart, which aims to identify the main trend. If we can use it to find out the general direction of the market, then we know which direction to trade in. When analyzing the chart, candles can tell us about market rejection and momentum, which indicates whether we should continue trading or stop to wait for the market to align.
The Secondary Chart
The Secondary Chart, also known as the setup chart, helps us to find the trade setup AFTER we have determined the direction of the market. For example, the chart might provide us with two possible levels to enter the market, depending on the current market setup.
The Entry Chart
Finally, traders will use the entry chart to reduce risk and increase their possible reward after determining the market direction and finding the setup. Note that you could technically skip this chart and enter the market directly from the secondary chart, although your best bet is to stick with the complete strategy if you’re looking for the best reward. One tip is to use the five-minute chart for entry on H1 levels, but this isn’t recommended to novice traders and is better executed by professionals.