In today forex faq, we have a question from one of my readers of this blog asking me what is the advantage of using multiple time frame in trading plus what is the best trading time
Below is the question
1) what is the advantage of using 4hr,1hr time frame to 15 minutes,5mins time frame.
2) What is the best trading time.
Answer to question 1
The purpose of doing multiple time frame analysis is to allow us to do a top down analysis of the same currency pair from the highest time frame to the lowest.
By doing this, we will be able to identify the trend on all the time frame so that we have a big picture of the current trend of the market. With a big picture of the total trend of the currency, we will not be mislead by what we see on the lower time frame.
Sometime we will see that the 15 minutes chart is in an uptrend but if you do the top down analysis, you will realize that the overall trend is actually down and not up.
By knowing this, you can avoid getting into BUY trades as it will be equivalent to trading against the overall trend.
In case some of you do not understand how to tell the overall trend. Let me show you the technique.
First of all, you just have to plot the 200 EMA on the 15 minutes, 1 hourly, 4 hourly and daily chart. From the gradient of the 200 EMA, you will be able to tell the trend of the time frame you are looking at.
If the 200 EMA is sloping downward with good gradient, you are seeing a strong down trend.
If the 200 EMA is flat and the candlestick is clustered near to it, then the market is consolidating.
If the daily, 4 hourly and hourly are showing uptrend while the 15 minutes are showing downtrend, it is taken that the overall trend of the market is UP. This is because what we see on the lower time frame is just the retracement of the higher time frame.
Therefore I will suggest that you look for opportunity to go SHORT on your 15 minutes chart to profit from the trend. Although it looks like you are trading against the trend on the 15 minutes chart, you are actually trading in the direction of the trend if you know the big picture of the trend.
That is the advantage of using multiple time frame in trading.
Answer to question 2
Personally I do not have in mind the best trading time for anyone. The forex market is opened 24 hours everyday from Monday to Friday. Therefore I believe that there are trading opportunity at anytime of the day.
What is most important in my point of view is for you to trade at the time where you feel most relax and free. There is no point trading the London Open time when you are actually working.
The stress level of trading during work will greatly affects your judgement which will in turn affects your profitability in trading.
That is why I always encourage readers and students to trade during their free time so that they can stay focus and accurate in their analysis.
I hope that I have answered both your questions and do feel free to email me when you have any problem.