Multi-Timeframe Market Analysis

An important idea for me is that I understand where the market I’m trading is in the big scheme of things. Understanding whether the market is trending or balancing and volatile or calm and where it is within these different phases in the various different timeframes, can give me critical information in order to weigh the probability of a trade I’m looking to take. For example, I might think twice about taking a long if a long-term uptrend has just broken or I might pass on a short when the market is breaking out of balance to the up side.

UNIVERSAL EXERCISE

If you trade one or two markets day in, day out then you might want to consider this exercise. Trading and executing in particular, can become an extremely blinkered endeavor. By concentrating on getting your trades executed correctly and what’s going on intraday, it’s fairly easy to get lost in the detail. Taking a step back can help you maintain an awareness of what’s going on in the broader picture and understand when you need to step up or step back. But this doesn’t just apply to day traders. Far from it in fact – swing traders who are potentially trading many different and sometimes unfamiliar products simultaneously, should have substantial motivation for using this approach. Having a method for assessing what’s been going on in the short, medium and long term can help a swing trader to identify markets where their strategy currently has a greater chance of success.

SORTS OF THINGS YOU MIGHT WANT TO LOOK FOR

The object of the exercise is to get a better feel for what’s going on in higher time frames. The higher the time frame, generally the bigger the player involved. So understanding their possible objectives will help you remain in the flow (or get into it) and not be unnecessarily swayed in your overall view by short term price fluctuations. Although there are many things you personally might like to consider, these are some of the elements that I think it’s important to determine answers for in the various higher timeframes: –

  • Is the market trending or balancing?
  • What’s the market’s location within the trend or the balance?
  • How freely is the market moving?
  • How is the market reacting to higher prices and lower prices?
  • Are there any really big reference levels or trend lines to take note of?

CONSIDERED, CONSISTENT AND DELIBERATE

Although doing this daily or weekly might seem to some like it’s an overly tedious and repetitive task, the support that it gives your understanding of market activity is invaluable in my book. By having a standardized method to gain this top down view of market activity and making sure that it is repetitive so it becomes second nature, you’ll start to almost feel the markets and anticipate their behavior.

EXAMPLE FROM THE ROOM

The questions above are ones I’ve always asked. Applying them to forex swing trading can really be a great help. But if you’re going to do it for a number of different pairs, it’s important to make sure that you’re clear and concise in how you go about it, in order to retain its usefulness and stop the task from becoming overwhelming.

EUR/GBP Monthly Chart

EUR/GBP Weekly Chart

EUR/GBP Daily Chart

In the room, we’ve started looking at monthly, weekly and then daily charts. Questions are then broadly answered to try to identify what’s going on in each pair in a simple and straight forward manner. Sometimes it helps you to see trades that you might like to avoid, but other times it’ll give you the confidence in holding a trade to its conclusion.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.