Here’s how trading multiple time frames Forex, stocks and futures can dramatically improve your win/loss ratio.
Trading multiple time frames Forex or any other market is a common practice for those using technical analysis to trade the stock market, Forex, Eminis and other futures markets. It can be used to increase both your win/loss ratio and also your risk/reward ratio.
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Welcome to the video on trading multiple timeframes, a very, very important topic.
One of the reasons that using multiple timeframes Forex is very important is because when you have two time frames that align, that give you a good buy signal or good sell signal concurrently, you have a higher probability of a winning trade.
Why is that? There is a market logic to it. The market logic is that you have some people looking at one timeframe, for example here we have the daily chart. This is the spiders. But the point is this is a daily chart. So you’ll have some people, for example, looking at a daily chart. And trading of off that. That’s one group of market participants that are looking for sign and why trading multiple time frames is so powerful.
TRADING MULTIPLE TIME FRAMES IS THE KEY TO PROFITABILITY
A sign that it will be pretty obvious one that a lot of people trade is the market coming up, breaking through this resistance level here, coming back down, and resistance then becoming support, and the market going up. That’s a very traditional technical analysis thing for people to be watching, and especially when it’s a significant support or resistance level. That one is because if you go over here, you’ll see that that level is of off these highs. These major highs here basic triple top. 1, 2, 3, I’ll mark that for you. So there is 1, 2 and 3, so triple top trading pattern.
A lot of people have looked at this, and the more people who see something, the more people respond to it in the future. that means you have more people buying, more people selling. therefore it’s more likely to be a self-fulfilling prophecy. And that’s really how markets work is it’s a big auction place. And the more people that are buying, selling, that’s basic supply demand and so that high then, is going to be one that a lot of people see. Again, that’s the logic of why trading multiple time frames Forex or any other market works so well.
HERE’S LOGIC BEHIND WHY MULTIPLE TIME FRAME TECHNIQUES WORK.
We are going to have some people who will take profits into that. Which is probably why you have that one red bar there. And the market goes above it, and then it comes back, and says well wait a minute, let’s see. Are we really serious about that? We got above it and going to have people be a little skittish, and then when it moves back up, even here you see these bars here for example, these bars are a bit of a hesitation, aren’t they?
You got a doji bar, you got a narrow range bar, another narrow range bar. Until we break the high above this bar, and then you get your big candlestick. And that’s when the market has real extra confidence. So this is your first significant move, and then there and then there in the step 3.
THE PROBLEM WITH THE MULTIPLE TIME FRAME STRATEGY
The problem is, so that yes that is a great pattern. We love it. however, the challenge here is, if we take this trade based on the daily chart, we are getting in, not half way past the move from this low to that high. In fact even less, and then that high and now we are all the way back down to here. So it’s a late entry. As far as I am concerned.
So the problem is the reward on it is not that great. And we want not only a high win loss ratio. That’s got a pretty good high win loss ratio on that tip of the trade. But it’s not a great risk reward ratio. It’s not too bad, but it’s not stellar. We want a better reward to risk ratio. So how do we get a better reward to risk ratio?
Well the same answer. Trading multiple time frames Forex, stocks, futures or E-minis. So let’s bring up a longer timeframe, in this case a daily chart. In this case a weekly chart. So now I have the weekly chart on the right, and the daily chart on the left. So we’ll call the daily, the shorter time frame, the weekly, the longer timeframe.
EXAMINE THE DETAILS OF A MULTIPLE TIME FRAME TRADING SYSTEM
We have a nice setup over here on the weekly as well. Right in this area here. So trend is up, that’s the 50 period simple moving average. Got a wave 1 and a 2. So that’s a first retrace in the trend. And then we get a very nice 3 bar candlestick pattern for a bullish signal. By the way, this black line is the 15 EMA. Now as that comes in, you see early November, so it comes in around this time, right in here. Early November.
What happens on the daily chart, well we get a gap up. Boom. Nice big gap up. Okay, let me bring my crosshairs on here. So with my global crosshairs, you can see where these match up. There we go. So let’s just do it this way here. Okay, so now you can see, we got in a lot earlier, or we could have potentially got in a lot earlier, if we would have looked for this setup on the weekly chart instead of the daily.
HOW TO IDENTIFY A TRADING TRIGGER ON STOCKS, FOREX OR FUTURES
Now we want a good signal, a good trigger, if you will on the daily chart as well, but we are primarily looking for the setup on the longer term chart. By the way I am using daily and weekly charts but this can apply to any 2 timeframes. You could use an hourly chart, a 4 hour chart or shorter time frames if you want to as well.
The point is, looking for the setup on the longer term chart now, what that does, okay look where we are here with our crosshairs. I don’t know If I can keep that there or not with my drawing tools here. That’s going to work, but here was our, our entry before. Remember breaking above resistance and retracing back to support, and so we got in here, about I’ll say somewhere around 220 or so.
Now we are able to get down, we are able to get in here somewhere around, let’s say 214. 13, 14, 15, somewhere in there. Depending where you would actually take your entry, and oh my goodness, look at that, you have doubled your profits, roughly.
You know that’s where it’s gone, so far. So our initial reward, if you would have taken the setup on the daily chart as that, your reward on it if you take it on weekly chart is that plus that huge difference. Huge difference. So in this case about double. And so therefore I like to always look for setups on the longer term charts, and then look for triggers on the shorter term charts. So that I get a superior risk reward ratio.
TRADING MULTIPLE TIME FRAMES FOREX INCREASES YOUR WIN/LOSS RATIO
I also find, as we said at the beginning of the video, trading multiple time framest also increases my win loss ratio. Now the one thing that I will say is the downside of this approach, is that you don’t get as many trades. And that’s just a logical thing. If waiting for trades on the longer term chart, well there’s just not just going to be as many trades because there’s not as many bars in the same period of time.
One of the ways to resolve that is simply be trading more markets, have a variety of markets that you trade, I would trade a lot of, I do trade a lot of non-correlated markets so that I get a lot of opportunities on the longer term chart.
So very very important principle and one of the thing that I would say too is timing is absolutely critical. So might ask, well how would you know to get in here, of course that’s a 5 wave pattern, that’s your average trend. So trend reversal there was to be expected.
TIMING IS EVERYTHING
A Timing indicator would indicate that. If you have interest in my timing indicator, I do give away that for free on the webinar, where I train you how to use it and give it to you all for free. Just send me an email at Barry@TopDogTrading.com and I’ll be happy to send you over that info. But timing is absolutely critical. And then again, trading with the trend over here on the long term chart, and trend reversal after 5 wave pattern here is actually in alignment of trade and trace. They are just different signals. But they are still both long signals.
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