To trade with multiple time frames, traders must first look at long-term time frames, such as monthly or weekly charts to find out the general trend.
It’s actually quite easy; If the trend is generally up, then you should open long positions, while if the trend is generally down, then put short positions.
Also read: Understanding Time Frames in Forex
Next is to look at shorter time frames, such as on the H4 or H1 charts to look for trading opportunities.
As I stated above, if the trend is generally up, then you should open long positions; But this does not necessarily mean you should not open short positions at all.
There will always be opportunities for the movement against the trend which will open up opportunities for you to trade.
For example, when there is a strong uptrend, a minor retracement to the downside can be a potential trading opportunity. Finally, look at lower time frames, such as the 15M chart to ensure proper entry points.
Because I am a day trader, I do not monitor the daily chart, and instead, use the H4 and H1 charts to see the general trend.
Then, I will look at the M15 and M5 charts to see if there are any trading opportunities that arise. Of course, this can vary, it all depends on how long you want to hold the trade.
What makes trading with multiple time frames so powerful is its ability to put the trader on the right side of the market, as well as show the available entry opportunities.
In one of my favorite books by Dr. Alexander Elder, he explained the Triple Screen method used in the utilization of multiple time frames, complete with details.
In Come Into My Trading Room Book: A Complete Guide to Trading
“Triple Screen resolves the contradiction between indicators and time frames. Reaching strategic decisions on long-term charts, using trend-following indicators – this is the first screen. Then proceeds to making tactical decisions about entries and exits on intermediate charts, using the oscillator – this is the second screen. It then provides several methods for placing buy and sell orders – this is the third screen, which we can apply using intermediate charts as well as short-term charts.”
“Start by choosing your favorite timeframe, i.e. which chart you prefer to use, and call it “intermediate”. Then multiply by five times to find your long-term timeframe. Apply trend-following indicators on the chart to reach a strategic decision to open Long, short, or out of the market position. Stepping out of the market (not opening a trade) is also one of the positions that can be taken. If the long-term chart displays bullish or bearish, return to the intermediate chart and use the oscillator to find entry and exit points In the same direction as the longer-term trend indicates. Set profit targets and stop losses before switching to short-term charts, if any, to improve the quality of entries and exits.”
Let me give you an example. To trade with this strategy, the trader will start with his favorite timeframe, say the H4 chart, and call it ‘intermediate’. To find the long-term chart at what timeframe, multiply it by five (or 4, or 6).
Thus, the longer-term chart can be a daily chart (H4 chart x 5 = H20, H20 is closely related to the daily chart/D1).
Meanwhile, to get the short-term chart, the intermediate chart must be divided by 4-6. So, the short-term chart in this example could be the H1 chart (H4 chart 4 = H1 chart).
The long-term chart should be the first screen where you can focus on the trend and use indicators such as Moving Averages, MACD, or trendlines to decide whether to open long or short positions or not trade because the market is not trending.
The intermediate chart is the second screen that Stochastics or RSI can apply to identify pullback entry zones.
Finally, on the short-term chart, or third screen, you look for a support/resistance breakout that matches the direction indicated by the longer-term trend to guide trade entry.
Also read: What is Forex Market Sentiment?
This triple-screen strategy is really good. I always do; Check the higher timeframe first before opening a trading position on the lower timeframe. Trading forex with only one timeframe is like blind trading; You won’t know what happens to the larger state.