Aligning higher time frames for trading

One of the main concepts behind the beginner strategy is multiple time frame analysis – using a higher time frame to determine the overall market direction and executing trades on a lower time frame.

If you would like to learn more more about multiple time frame analysis, then you can go to the following lesson:

Lesson
Learn how to use multiple time frame analysis to reduce risk and find more accurate entries.
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By determining the overall direction on a higher time frame and trading in that direction, you make sure that you trade in the direction of the overall trend – this increases your chances of profitable trades. In the beginner strategy, you use the 30 minute chart as the higher time frame, however, you can go a step further and also use the 4 hour time frame to assess an even larger picture.

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You can use two higher time frames to filter trades

You can align the 4 hour chart and the 30 minute chart to filter trades. If the 4 hour chart and the 30 minute chart agree, then you can trade in the direction of a longer overall trend. If the 4 hour chart and the 30 minute chart do not agree, you can stay out of the market until they do.

To do this, you use the 4 hour chart in conjunction with the 30 minute time frame. If the 30 minute time frame and the 4 hour time frame are aligned, indicating the same market direction on both time frames, then you can take trades in that direction.

For example, if the direction on the 4 hour and the 30 minute chart is up, then you could look for long trades. Similarly, if the direction on the 4 hour and 30 minute chart is down, then you can look for short trades.

If the 4 hour chart conflicts with the 30 minute chart, showing two different directions, then you can stay out of the market until they align again.


How to determine if the 4 hour and 30 minute time frames agree

The following shows how to determine if the 4 hour chart and the 30 minute chart show the same market direction.

To align two higher time frames, you start at the highest time frame and then work down. So first switch to the 4 hour time frame and use the same rules as determining the market direction on the 30 minute chart.

You look for the last break of an up fractal and the last break of a down fractal. If the last fractal break was of an up fractal, then the direction is up on the 4 hour chart. Similarly, if the last break was of a down fractal, then the market direction is down on the 4 hour chart.

You can see this demonstrated on the chart below. The last break of a fractal was an up fractal and so the direction on the four hour chart is up.

Aligning higher time frames 4 hour chart

number_1Last down fractal to be broken
number_2 Last break of the down fractal
number_3 Last up fractal to be broken
number_4 Break of the last up fractal. This is the last break to happen and so the direction on the four hour chart is up

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Then go to the 30 minute chart and check the market direction to make sure that they are in alignment with each other. Find the last break of an up fractal and then the last break of a down fractal. Whichever broke last determines the direction.

Determining the direction on the 30 minute chart

number_1 Line drawn on the 4 hour chart
number_2 Line drawn at the last fractal that was broken – this was an up fractal
number_3 Break of the last fractal which was an up fractal, indicating that the market direction is up.

The 4 hour time frame and the 30 minute time frame are aligned in the same direction, which means that you could now use this to look for buying opportunities.

If the 4 hour and the 30 minute chart have both shown to have a market direction to the downside, then you would look for short trades on the lower time frame. If the 4 hour and 30 minute chart were not in alignment, then you would simply wait until they are – either both showing that the market direction is up or that the market direction is down before you start looking for trades.

Summary

So far your have learned...

  • ... the beginner strategy uses multiple time frame analysis to determine the overall trend direction, so you can trade in the direction of the trend.
  • ... trading higher time frames will help make sure you incorporate an even longer term trend.
  • ... you can wait until the 4 hour chart and the 30 minute chart are aligned, indicating the same direction, in which you can then trade in that direction.
  • ... You start with the 4 hour chart, determine the direction and go down to the 30 minute chart and check that the 30 minute chart is indicating the same direction.
  • ... if the 4 hour and the 30 minute chart are not aligned, then this acts as a filter and you can stay out of the market until they are.

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  • By how much would this reduce trading opportunities by your estimation? Even better if you have some kind of data.

    Thanks!
  • Hi pucilpet
    Well in theory the 30m and 4h time frames should show the same market direction. If they don't it may be an indicator that the direction is changing. I think the important thing here is that if the 4h and 30m concur then it is more reliable direction indicator than the 30m in isolation. I am not sure if this is backtested but will check.
    Good luck biggrin
  • Is there any other way to determine the trend direction to learn, can this #(SF_TREND_LINES) indicator works?
    Would that help to use both Fractal and #(SF_TREND_LINES) Indicators?
  • Several Time Structure research is exactly what it appears to be like: specialized research on various time supports. The essential concept behind multiple time frame research is to prevent getting mashed by bigger styles, stages, strength and styles (I put that in the adverse since investment maintenance is concept variety one in this business). To provide you a concept, let's assume that you've used all these primary TA resources in your own research and have identified that you have what you consider to be a low threat, great compensate, lengthy installation on the everyday time frame, but that you then get your go passed to you because the every week was still pushing for a capitulation low before treating. The bigger time frame ran over you like a shipping practice because you hadn't involved it in your research and hadn't given it the concern it should get.

    There are many methods of working with differences on the various time supports, one of which is to never company against the bigger pattern and greater strength for the next greater time frame, for example. For effective investors who are going to take the company anyway, the use of that detail to clearly handle the company as a countertrend company is clearly beneficial. That's for another day though, since in-so-far as this content is involved, I'll be restricting factors specifically to a multiple time frame TA release, once again using the Dow Jackson as our example catalog.
  • Hi
    For determining market direction we use breaking of a fractal. Should we consider the magnitude of the break. If the price break the fractal by only a few pips and started moving in opposite direction. Should we consider that as a signal or should we wait .
  • Hello nazerqw,

    Basically, I would recommend you to consider a breaking valid whatever his magnitude. By having say that, if you feel too uncomfortable with such a signal, the best thing could be to wait the next opportunity.

    I hope that it helps.
    Sebastein

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