Trading forex in multiple time frames and why other people do it

Trading Multiple Time Frames and forex trading

A single currency pair exists in different time frames. It appears daily, hourly, even in every minute. Look at the charts, and you will know that there is more than one timeframe for a single currency pair. Now that we know this fact, we understand why other traders can trade the very same currency pair at the same price on several time frames. We call this type of trading “multiple time frame analysis.”

Looking at the charts

There are several chart applications that you can choose from the bunch. You can view different time frames in each of these chart apps. In the tab, you can see that there is “1 hour”, “1 day”, “5 minutes”, and so on. For instance, your chart app currently displays a one-hour chart and a “1-day” tab. You can press “5 minutes,” which will give you a display of a five-minute chart. If you press “1 day,” then it will take you to a daily time frame display.

People can have different interpretations of a single currency pair.

Chart apps have different time frames for a reason. Suppose you wonder why; there are plenty of participants in the market where other traders have their different takes on the pair’s trading. In that case, they can all be correct. How can that be possible?

It is possible. Traders have different trading styles and techniques. Some like to look at more extended time frames like the weekly one, while some look at shorter time frames like the daily or the minute chart time frames. For instance, Christian and Jack are looking at the same EUR/ USD currency pair at the same price. However, Christian is looking at the EUR/USD’s daily chart and seeing a downtrend.

On the other hand, Jack looks at EUR/USD’s shorter time frame, a two-hour chart. The thing is, Jack is seeing a ranging motion that is different from what Christian is seeing. They can be both correct with their interpretations.

This may be a problem since both situations can confuse traders about which trading decision they will make next. In Christian’s and Jack’s case, we said they could both be right about their interpretations, but their trading disposition may not be the same even when looking at the same currency pair. How can we avoid this?

Avoid making lousy trading decisions.

So now, you have a choice to focus on a single time frame to avoid being confused. However, if you decide just to guess whether you will buy or sell, wouldn’t that make you a lousy trader? Here is why it might be a great idea to give multiple time frames a chance:

  1. You can look at the currency pair from different angles.
  2. You can enter and exit the trade earlier.
  3. You will know the opinion of other market participants.
  4. More extended time frames can help in confirming whether the trend changed or not.
  5. Spotting support and resistance areas that are about to come is easier.
  6. Spotting trend changes easier and earlier.
  7. You’ll know how the currency pair behaves in short, average, or long time frames.