Anytime someone asks me, “What’s such-and-such market doing, Raghee?” I answer it by asking “Which time frame?” That must be the first consideration. A five-minute chart could be behaving very differently from a one-hour chart and different still to the four-hour or even the daily. The daily chart is the most psychologically significant, but we should never assume that’s where the trade or the action is! The easiest way to begin understanding what it means to analyze any market across multiple time frames is to view short time frames as the building blocks to larger time frames.
I trade forex off one of five time frames: the 30 minute, 60 minute, 180 minute, 240 minute and daily or end-of-day chart. Sometimes I’ll look at a time frame as short as the 15 minute. But frankly, anything smaller than that begins to make less sense when you factor in the cost-per-trade in forex. With five, maybe six viable time frames to consider, there are not only the individual market cycles to consider, but there are risk/reward issues. Consider that daily charts, due to the fact that a single day’s trading will represent a wider range from high to low than a 30 minute or 180 minute time span can, inherently has more risk because of it. So it’s not enough to find a trade on a specific time frame; you have consider the risk that comes with it and whether the risk is appropriate for your account size and risk tolerance.
No daily chart is going to trend higher or lower or consolidate without the smaller, intraday time frames moving it there. That’s the heart of the “brick by brick” philosophy. It takes two 15 minute candles to make a 30 minute candle, two 30s make a 60 minute candle, three 60s for a three hour or 180 minute candle . . . see where I’m heading? It’s the smaller time frames that dictate the direction of the larger time frames; it’s cumulative. For those of you who use multiple time frame (MTF) confirmation, this is my reasoning for not using it.
I started out trading fully embracing the multiple time frame confirmation philosophy. I did it really for no other reason than I was told in book after book, that it’s what I should do. So what is multiple time frame confirmation you ask? Generally, it’s the process of confirming the overall direction of a market with a comparatively larger time frame. For example, confirming the direction of a 30 minute chart with the direction of the 180 minute or 240 minute chart. When you consider the “brick by brick” philosophy, this is a backwards way of confirming market direction. Remember that moving from smaller time frames to larger time frames is cumulative. Smaller time frames are the building block, the bricks, which build the larger time frames.
At any given time there is a very good chance that each time frame will have slight differences not only in direction but also the quality of that direction. The 60 minute chart may be in an uptrend but the 30 minute’s uptrend might be stronger or steeper or correcting to support better. It’s these differences we compare to determine which time frame we will setup and trade. Here’s another point to consider. Once you choose the time frame you will set-up, confirm, and manage the trade from that time frame alone. Later on, we’ll be discussing market memory, and this will take care of many of the issues traders have when treating a time frame in this manner. Most of the issues stem from a concern over not knowing all relevant points, support and resistance, on the chart. It’s that feeling that you’re not seeing everything you need to be aware of. Working from the market memory, coupled with psychological numbers, will help take care of this entirely.
There is some value in MTF, but I believe it’s limited to comparing intraday time frames to the overall or “daily” time frame. For many traders, trading against the daily time frames is trading against the overall psychology of the market. Now, if there is a clear direction on the daily, this certainly can be a filter. But it’s not a required one.
I trade forex off one of five time frames: the 30 minute, 60 minute, 180 minute, 240 minute and daily or end-of-day chart. Sometimes I’ll look at a time frame as short as the 15 minute. But frankly, anything smaller than that begins to make less sense when you factor in the cost-per-trade in forex. With five, maybe six viable time frames to consider, there are not only the individual market cycles to consider, but there are risk/reward issues. Consider that daily charts, due to the fact that a single day’s trading will represent a wider range from high to low than a 30 minute or 180 minute time span can, inherently has more risk because of it. So it’s not enough to find a trade on a specific time frame; you have consider the risk that comes with it and whether the risk is appropriate for your account size and risk tolerance.
No daily chart is going to trend higher or lower or consolidate without the smaller, intraday time frames moving it there. That’s the heart of the “brick by brick” philosophy. It takes two 15 minute candles to make a 30 minute candle, two 30s make a 60 minute candle, three 60s for a three hour or 180 minute candle . . . see where I’m heading? It’s the smaller time frames that dictate the direction of the larger time frames; it’s cumulative. For those of you who use multiple time frame (MTF) confirmation, this is my reasoning for not using it.
I started out trading fully embracing the multiple time frame confirmation philosophy. I did it really for no other reason than I was told in book after book, that it’s what I should do. So what is multiple time frame confirmation you ask? Generally, it’s the process of confirming the overall direction of a market with a comparatively larger time frame. For example, confirming the direction of a 30 minute chart with the direction of the 180 minute or 240 minute chart. When you consider the “brick by brick” philosophy, this is a backwards way of confirming market direction. Remember that moving from smaller time frames to larger time frames is cumulative. Smaller time frames are the building block, the bricks, which build the larger time frames.
At any given time there is a very good chance that each time frame will have slight differences not only in direction but also the quality of that direction. The 60 minute chart may be in an uptrend but the 30 minute’s uptrend might be stronger or steeper or correcting to support better. It’s these differences we compare to determine which time frame we will setup and trade. Here’s another point to consider. Once you choose the time frame you will set-up, confirm, and manage the trade from that time frame alone. Later on, we’ll be discussing market memory, and this will take care of many of the issues traders have when treating a time frame in this manner. Most of the issues stem from a concern over not knowing all relevant points, support and resistance, on the chart. It’s that feeling that you’re not seeing everything you need to be aware of. Working from the market memory, coupled with psychological numbers, will help take care of this entirely.
There is some value in MTF, but I believe it’s limited to comparing intraday time frames to the overall or “daily” time frame. For many traders, trading against the daily time frames is trading against the overall psychology of the market. Now, if there is a clear direction on the daily, this certainly can be a filter. But it’s not a required one.
