This article on Trading Multiple Time Frames is the opinion of Optimus Futures, LLC.
- Analyzing multiple time frames helps traders understand market sentiment and make better decisions.
- Use both long-term and short-term time frames for valuable insights and fine-tuning.
- Many trading strategies benefit from multi-time frame analysis, improving performance and success.
But the thing is, many trading methods, which use well-known tools like technical indicators and chart patterns, only focus on one specific time period. They don’t consider longer or shorter time periods.
Making this mistake can be a big problem. Even though it means you have to look at the same price changes from different angles (which can be tough for new traders), it’s really important if you want to be a successful futures trader in the long run.
It doesn’t matter if you’re a swing trader or a long-term trader using longer time periods, or a scalper focusing on shorter time periods. The best way to understand market sentiment is by paying attention to many different time periods.
Trading Multiple Time Frames – Using Lower AND Higher Time Frames for Futures Trading Strategies
Many new traders think that shorter time periods are for fast day trading or scalping strategies, while longer time periods are for longer-term swing trading methods.
But, when you start looking at these time periods as different ways to see the same price changes, your view changes a lot.
Shorter time periods show more price bars in the same amount of time compared to longer time periods. This is great when you want to see the market in more detail.
For traders who use longer time periods, watching just one price bar near an important spot like a support and resistance level or a trend line won’t show as much info as seeing many price bars in the same time on a shorter time period.
Past performance is not indicative of future results.
In the example above, if we only looked at the daily time period, the strong increase in the price shown by the candlestick in the small black box wouldn’t tell us much.
But, when we check the hourly time period, we see the RSI is overbought and there’s a bearish divergence. We also notice some candlesticks with lower wicks, which means that selling might be starting in the market.
Similarly, for traders who use shorter time periods, it can be helpful to combine the price changes shown by many candlesticks into one or just a few to get a wider view of the market. Let’s look at a quick example:
Past performance is not indicative of future results.
Notice that on the one-hour chart, the price movement we see at a key resistance level actually shows a bearish engulfing candlestick pattern on the daily time frame. A trader who only looks at the one-hour chart for entry points would have missed a potentially good trade at this key spot.
As you can see, checking different time periods, especially when the price is moving around key locations, is a great way to better understand market sentiment and price action. This helps you make smarter choices about when to enter or exit the market.
Using multiple time period analysis also has another very important use – fine-tuning your trading decisions.
Fine-Tuning Trading Decisions Using Multiple Time Frame Analysis
A trader usually looks for an ideal trade setup, which means entering and exiting at the right times to make maximum profit. Looking at different time periods can help you be more accurate identify these type of trades.
Let’s look at a few examples:
Let’s think about a common trading strategy where you trade pin bars (hammer pattern) at high and low points. If a trader only used the daily time frame for the bearish pin bar shown in the chart, they would be at a disadvantage.
It’s clear that the pink area should give some support to the price. But waiting for confirmation of support (which would likely be a candlestick closing back up after touching the area) would mean losing profit for this trader.
For an entire trading session, it would be frustrating to see the price touch the pink area, find the expected support, and close back up, signaling the trader to exit with a smaller profit.
Now let’s see how looking at shorter time periods when the price was about to hit the pink area could have helped this trader:
In another article, we discussed how important levels in the market often pull prices towards them quickly, only for the price to bounce back just as fast. We can see that happening on the one-hour chart.
Notice how the price falls quickly into the level (the pink area shown in the earlier chart) and bounces back just as fast. We even have a bullish pin bar right at the level, giving more confirmation of strong support there.
Looking back, exiting after the bullish pin bar formed would have been a reasonable decision, allowing the trader to keep most of the profit from the trade without losing it due to the price bounce from the key support level.
Similarly, a day trader who only focuses on the price movement in shorter time periods might miss the bigger picture and some important long-term areas not visible in those time frames.
Let’s think about a trader trying to trade a breakout of a wedge pattern breakout on the one-hour chart:
The green horizontal line on the chart shows a long-term resistance area visible on the daily time frame, which we’ll show soon.
For now, imagine how this trader might think the white space above is free for the price to rise into after the long-awaited breakout of the good-looking wedge pattern.
Unless the trader zoomed out or scrolled a lot to the left, it’s not likely they would have seen that key resistance. As you can see, the price had a tough time penetrating that key resistance level.
Now let’s look at the daily time frame for the bigger picture:
Past performance is not indicative of future results.
On the daily time frame, we can easily see the swing high that matches the green line we drew earlier. We also added the same trend lines from the previous chart to show the wedge pattern.
You should be able to notice how weak the pattern appears compared to the major long-term resistance we were facing.
When you think about all this information, it’s easy to understand why some resistance was expected at the long-term key level. It would also be easy for a beginner day trader to miss that area if they didn’t pay attention to longer time frames.
As you get better at reading charts and price movements, you don’t want to miss the insights from looking at different time frames.
It’s usually helpful to start by looking at longer time frames for a wide view of the market sentiment, and then zoom into the price action by switching to shorter time frames.
No matter if you’re a day trader or a swing trader, using both longer and shorter time frames regularly in your analysis gives you the important perspective you need to make smart trading decisions. We showed this through examples in the previous sections.
The Bottom Line
Understanding how to use multiple time frames is essential for traders who want to make informed decisions and maximize profits. It is important to use both longer and shorter time frames in your analysis, regardless of whether you are a day trader or a swing trader.
By doing so, you gain valuable insights into market sentiment and price action, allowing you to fine-tune your trading decisions.
In this article, we demonstrated the benefits of using multiple time frames with various examples. However, there are other trading strategies that can also benefit from incorporating multi-time frame analysis.
It’s essential to explore these strategies and find the one that works best for you, as combining different time frames can significantly improve your trading performance and help you achieve long-term success in the futures market.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. The example strategies in this article are for informational purposes only and are not intended to be trading advice.
