Multiple Time Frame Analysis

09 Mar at 19:19

When using technical analysis in forex trading, a number of traders will refer to charts that cover different time frames in order to refine their analysis.  Further, many technical analysts provide different forecasts for a particular currency pair that depends on what time frame they have under consideration. Due to the fractal nature of market price action, each of the classic chart patterns can be seen to arise on short, medium and long term forex charts.

This article is going to look at the lengths of different time frames that technical analysts review and how they may be useful to a forex trader.

The Intraday Time Frame

This time frame covers the trading activity that occurs primarily within the current trading day. Here charts with very short bars will be used to review very recent price action.

For instance, for a very short-term analysis, they might use tick charts where each change in the exchange rate of the currency pair of interest is plotted in real time as they happen.

Slightly longer term bar charts may also be used, with periods running from 1 minute to 15 minutes to study the intraday time frame depending on their intended purposes.

These types of charts are typically used by traders to focus on the intraday time frame as they anticipate a forthcoming entry or exit from the market. They will usually be scalpers or day traders, but they might even be swing or trend traders looking to time their trading activities with greater precision as a trading signal approaches.

Intraday charts are used by traders with all trading when searching for clues that the market may be in the process of reversing. They might also seek to identify the most recent support and resistance levels that the market has been respecting.

The Short or Near Term Time Frame

This time frame for technical analysis is very popular and typically covers the last trading month or less. Usually it will be analyzed using hourly or four-hour bar charts.

By reviewing this fairly recent price action, technical traders that hold overnight positions can often look a bit further ahead in their analysis. By doing so, they can develop and refine an objective plan for how to trade over the next few days.

Such a short-term trading plan might include whether they should close their trading position on a Friday or take the additional risk of keeping the position open over the weekend for additional potential gains, for example.

The Medium Term or Intermediate Time Frame

This time frame will typically be plotted using a chart with daily bars and it represents what has happened over the last few months. It gives forex traders a good overall picture of the major trend and, as such, tends to be used by those employing trend and swing trading strategies.

Forex traders might also use moving averages to smooth the medium-term price action for a currency pair in order to more easily identify any trends.

The Long Term Time Frame

This is an extended time frame showing the price action has been seen for the currency pair during the last several years. It gives an overall picture of the market’s recent memory with regards to price action and will usually be reviewed using a weekly bar chart.

Carry traders or other forex traders, planning to take positions that may hold for months, or even a year, will benefit from reviewing the long term technical picture for the relevant currency pair.

The Very Long Term Time Frame

This maximally extended time frame covers the overall historical perspective of the behavior of the exchange rate for a particular currency pair. Traders will usually plot exchange rates over the full range of price data available to them. Often, a bar chart constructed using monthly bars will be used to look at prices in this time frame.

This type of analysis can be employed by hedgers with especially long-term currency exposures they need to protect, often as a result of investing or transacting abroad. This time frame might also be used by investors who are considering making international investments over an entire business cycle that involve some form of currency risk.

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