Time Frame Analysis for Market Scalpers

By DailyFx | Updated July 30, 2014 AAA

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Talking Points:

  • Multi Time Frame Analysis helps pinpoint the trend across timeframes
  • The reference chart should use a time frame lager than the reference chart
  • If momentum lines up on both charts, traders can consider new positions

Multiple time frame analysis is the use of multiple graphs and time frames in order to calculate the current direction of the market. This skill is particularly important to short term traders and scalpers that are looking to identify the direction of the trend, prior to entering into the market. Today we will review how to work this skill into an already developed trading plan. Let’s get started!

Learn Forex –UK100 30Minute Reference Chart

Time Frame Analysis for Market Scalpers

(Created using FXCM’s Marketscope 2.0 charts)

Reference Chart

First traders need to begin with a reference chart. The reference chart is the largest graph you will uses for multi time frame analysis. Normally scalpers will turn to a 30 minute or 1 hour chart in this position to judge the direction of the market. When deciding on a reference chart, it is a good rule to consider is using a timeframe six times greater than your eventual execution chart. This means, if traders are starting on a 30 minute chart our next frame of reference will be taken on a 5 minute graph.

Once you have decided on the time frame of the reference chart, it is time to find the trend. One easy way to employ multi time frame analysis is through the use of a moving average. Above, we can see that the price of the UK100 is trading below the 200 EMA (Exponential Moving Average). Knowing that price is declining faster than the average, short term traders and scalpers will look for new selling opportunities. Before placing any trades however, the next step of multi time frame analysis is to check the direction of the market on our shorter term graph. Let’s take a look at how this is done.

Suggested Reading: The Definitive Guide to Scalping, Part 3: Time Frames

Learn Forex –Uk100 5Min Chart

Time Frame Analysis for Market Scalpers

(Created using FXCM’s Marketscope 2.0 charts)

Execution Chart

The execution chart is the final graph that traders will employ in their trading strategy. However before considering any new positions; we should continue and see if short term momentum is in line with our reference graph. Again this can be done through the use of a 200 EMA and determining if price is above or below the average. Once this step is taken, traders will then see how the two charts used align.

If price is above the EMA on our reference chart and also above on our execution chart, traders should potentially consider new buy positions. If both prices are below the average, the alternative is true, with traders looking to place new sell orders. Lastly, we should consider what happens when the two charts disagree. As seen in our example above, the reference graph is pointing lower, and our execution chart is pointing higher. In this environment, multi time frame analysis would keep us from executing any new positions.

Filtering for the trend is just one of three key ways you can utilize the Moving Average in your trading! To learn about the remaining two opportunities, sign up for the DailyFX Moving Average Trading Course. Registration is free, and the course includes video as well as checkpoint questions to test your knowledge. Get started using the link below!

Register me for the “Trading with Moving Averages, Strategy Course”

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