Trading Multiple Time Frames

Trading Multiple Time Frames - The Key to Successful Trading

by TradingStrategyGuides | Last updated Oct 29, 2020 | All Strategies, Price Action Strategies | 4 comments

Multiple time frame analysis is one of the most important things you should be doing before you take every trade.

So, in order to get you to remember this before you bust out your charts and start trading, consider this true story. It explains what multiple frame trading is and why you should use it on every trade you take.

If you live in an area where there can be bad weather for a few days in a row, you understand the importance of knowing what the weather is going to be like if you plan on doing anything outside. (i.e. Picnic, motorcycle ride, sporting event, outside concert, etc.)

Especially if you live in areas where there are always a potential for tornadoes, hail storms, snowstorms, hurricanes, and so on.

So let me explain a few very important lessons (as traders) we can learn by simply scanning the weather radar. Also, read the Simple way of trading multiple time frames in forex.

Lessons Traders can Learn from the Weather Radar

This may sound silly but trust me, this is some good stuff...

The other day I was planning an outside activity that required there to be no rain, no snow, no excessive winds, etc.

You get the point...

It needed to be nice and sunny out at this time (4 PM).

Well...

Here is what the radar would have looked like earlier in the day before the special event I was planning at 8 a.m.

So at 8 a.m., it was looking like a beautiful day. The birds were chirping, the sun was out, a light breeze.

Just overall perfect.

But remember, 4 p.m. was 8 hours away at this point.

So what I then did was zoom out of the weather radar to see if there was any inclement weather heading in my direction and will be at my location at 4 p.m.

Well as you may expect, here is what I found:

Snow/rain storms were heading in quickly. This horrible weather will be at my exact location roughly around the time of my planned activity!

Long story short, I ended up rescheduling my event due to the inclement weather that was going to take place.

To tie this example into our trading habits, if I would have not “zoomed out” at a larger frame and saw what was taking place a few hundred miles away, I would have been devastated when the time came for my event and there were 6 inches of snow on the ground.

This exact scenario can be compared to multi-time frame analysis. We do as traders on our charts every time we trade.

The Importance of Multiple Time Frame Analysis

Never get caught in just taking trades on one timeframe. Think of it like you are the Forex multiple time frame indicator. You are the indicator that scans different time frames.

What multiple time frame analysis is, is simply this:

If you trade on a 5-minute chart, you should have your eyes on 30 min and 1hr time charts. If you trade on a 15-minute chart, you should be checking out the 1hr and 4hr chart, etc.

Here's an example:

You see a move like above on a 5-minute chart and you think "wow I need to get in the short trade."

But what you have not done is “zoom-out” and check other larger time frames that may be showing something different.

As you see above on a larger 1-hour time chart, this may have been a simple retracement before heading back in a bullish trend.

That is why it is important to check other time frames every time you want to make a trade.

Most of the time, you will learn a great amount of information if you bump up to a larger time frame or bump down to a shorter one you are currently on. Look for prior support, resistance, a trending pair, or one that is in a current channel.

Here are some of the main advantages of using this type of approach before you enter a trade:

Benefits of Multiple Time Frame Analysis

• Key levels of support and resistance may exist near your trade, but that can’t be seen on the time-frame you are trading on.

• The trend may appear differently on the time-frame you are looking at than where the long term trend is moving.

• Price may appear to have room to move on one time-frame where it is actually quite over-extended on a lesser time-frame.

• You can make a much more precise entry point on shorter times than on longer ones.

• You may take a great trade on a short time-frame and hit your target, but not realize you could have let it run for a way bigger profit due to the longer-term trend.

We hope this information helps you see the importance of doing this multiple time frame analysis before you ever consider taking a trade. Don't forget to read about the multi time frame moving average strategy.

So maybe next time you check out your weather radar on your phone/computer you will think about this example. Remember the importance of multiple time frame analysis. 🙂

Thanks for reading!

Please leave a comment below if you have any questions about Trading Multiple Time Frames!

Also, please give this strategy a 5 star if you enjoyed it!

Check out our Fibonacci trend line strategy that uses this approach to trading in the strategy.

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If you like this grab our multiple time frame analysis pdf strategy here!

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TradingStrategyGuides

Author at Trading Strategy Guides | Website

With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. 

Stochastic Strategi 6 Langkah

 

Best Stochastic Trading Strategy- Easy 6 Step Strategy

by TradingStrategyGuides | Last updated Apr 13, 2021 | All Strategies, Indicator Strategies | 31 comments

Day trading with the best Stochastic Trading Strategy is the name of the strategy we’ll discuss today. As the name suggests, this is a stochastic strategy suitable for day traders. The stochastic strategy is much the same as the Day Trading Price Action - Simple Price Action Strategy.

The only difference this time around is that we incorporate a technical indicator into this strategy. Namely, the stochastic indicator. This is the best Stochastic trading strategy because you can identify market turning points with accurate precision.

Warning! This can turn you into a modern sniper elite trader. The Stochastic indicator will only make you pull the trigger at the right time. A modern sniper elite trader only pulls the trigger on a trade when he is certain he can pull a winning trade.

Our team at Trading Strategy Guides is developing the most comprehensive library of Forex trading strategies. Our goal is to help turn your trading around.

Our favorite time frame for the Best Stochastic Trading Strategy is the 15-minute chart. This is because we have taken the time to backtest the best Stochastic Trading Strategy.

We also tested the 15-minute TF came over and over again. If you’re a day trader, this is the perfect strategy for you. The stochastic strategy evolved into being one of the best stochastic strategies.

Despite the stochastic indicator being a very popular indicator among traders, they have been using it the wrong way. Our team at Trading Strategy Guides.com interprets the charts and the indicators in an unorthodox way. At the same time, it’s very productive.

Day trading might not be your thing, but perhaps you’re interested in trading on the higher time frames, like the daily chart. Don’t panic! We have your back. Our favorite MACD Trend Following Strategy is the best trend following strategy. For every Forex strategy, we make sure we leave our own signature and make it simply the best. You can also read our best Gann Fan Trading Strategy.

Now…

Before we move forward, we must define the indicators you need for day trading with the best Stochastic Trading Strategy and how to use stochastic indicator.

The only indicator you need is the:

Stochastic Indicator: This technical indicator was developed by George Lane more than 50 years ago. The reason why this indicator survived for so many years is because it continues to show consistent signals even in these current times.

Without further ado, let’s move straight to the point and:

• Define what the Stochastic indicator is;
• How to use Stochastic indicator;
• What are the Stochastic indicator settings

The Stochastic indicator is a momentum indicator that shows you how strong or weak the current trend is. It helps you identify overbought and oversold market conditions within a trend. The stochastic indicator should be easily located on most trading platforms.

The Stochastic indicator looks like this:

After extensive research and backtesting, we’ve found that this indicator is more suitable for day trading. Indicators, like the MACD, are more suitable for swing trading. You should really check out our amazing MACD Trend Following Strategy. We decided to share this with our trading community recently.

Another reputable oscillator is the RSI indicator, which is similar to the Stochastic indicator. We chose it over the RSI indicator because the Stochastic indicator puts more weight on the closing price. This is the most important price no matter what market you trade. This strategy can also be used to day trade stochastics with a high level of accuracy.

Let me just quickly tell you how to use the stochastic indicator and how to interpret the information given by this amazing tool so you can know what you’re trading. When the stochastic moving averages are above the 80 line, we’re in the overbought territory.

Conversely, when the stochastic moving averages are below the 20 line, we’re in oversold territory.

Please have a look at the chart example below to see how to use the stochastic indicator.

So, how does the stochastic indicator work?

The stochastic oscillator uses a quite complex mathematical formula to calculate simple moving averages:

%K = 100(C - L14)/(H14 - L14)

Where:

• C = the most recent closing price
• L14 = the low of the 14 previous trading sessions
• H14 = the highest price traded during the same 14-day period
• %K= the current market rate for the currency pair
• %D = 3-period moving average of %K

See below where to locate the %D and %K lines:

The mathematical formula behind this method works on the assumption that the closing prices are more important in predicting oversold and overbought conditions in the market. Based on this assumption the Stochastic indicator works to give you the best trade signals you can possibly find.

Best stochastic settings for 15 minute chart

The default settings for the stochastic indicator are 13, 3, and 1.

As you can see below, we will select a length of 14 periods to start.

 

Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules.

Let’s get started…..

Day trading with the best Stochastic Trading Strategy

(Rules for a Buy Trade)

 

Step #1: Check the daily chart and make sure the Stochastic indicator is below the 20 line and the %K line crossed above the %D line.

We’re day trading, but having in mind the higher time frame sentiment and trend.

This is a crucial part of the strategy because we only want to be trading in the direction of the higher time frame trend. Our team at Trading Strategy Guides.com has put a great deal of time in developing the best guide to Trading Multiple Time Frames - The Key to Successful Trading. The multiple time frame concept is important because it can give you a more robust reading of the current price action and more it can help you better time your entry and exit points.

Note*: On the daily chart, it’s not necessarily for the stochastic moving averages to be below the 20 level. They can be moving away from the oversold territory and the signal can still be valid, but it shouldn’t be above 50 level.

Step #2: Move Down to the 15-Minute Time Frame and Wait for the Stochastic Indicator to hit the 20 level. The %K line(blue line) crossed above the %D line(orange line).

This step is similar to the previous rule, but this time we apply the rules on the 15-minute time frame: wait for the Stochastic indicator to hit the 20 level and the %Kline (blue line) is crossing above the %D line (orange line). 

The 15-minute chart is the best time frame for day trading because is not too fast and at the same time not too slow.

See figure below:

It is said that the market can stay in overbought and oversold condition longer than a trader can stay solvent. So we want to take precautionary measures, and this brings us to the next step on how to use the stochastic indicator.

Step #3: Wait for the Stochastic %K line (blue moving average) to cross above the 20 level

We want to trade smarter, right?

Well, because the %k is the fast moving average it’s enough just to wait for it to cross above the 20 level because the %D line will follow suit. We don’t want to wait too much either as this will result in a reduced profit margin.

Right now is the time you should switch your focus to the price action, which brings us the next step of the best stochastic trading strategy.

Step #4: Wait for a Swing Low Pattern to develop on the 15-Minute Chart

What is a Swing Low Pattern?

A Swing Low Pattern is a 3 bar pattern and is defined as a bar that has one preceding and one following bar with a higher low. Here is how to identify the right swing to boost your profit.

A visual representation of the Swing Low pattern can be seen below:

So far, so good, but still we haven’t answered the most important question that a trader has:

Day trading stochastics: When to Enter?

This brings us to the next rule of the Best Stochastic Trading Strategy.

Step #5: Entry Long When the Highest Point of the Swing Low Pattern is Broken to the Upside

Nothing beats an illustration…

So, after following the rules of the Best Stochastic Trading Strategy, a buy signal is only triggered once a breakout of the Swing Low Patterns occurs.

Let’s turn our focus again to the EUR/USD 15-minute chart presented earlier and see how to use stochastic indicator in combination with the Swing Low Pattern.

See the chart below:

So at this point, your trade is running and in profit.

Step #6: Use Protective Stop Loss placed below the most recent 15-minute Swing Low

You want to place your stop loss below the most recent low, like in the figure below. But make sure you add a buffer of 5 pips away from the low, to protect yourself from possible false breakouts.

Step #6: Take Profit at 2xSL

Knowing when to take profit is as important as knowing when to enter a trade. The Best Stochastic Trading Strategy uses a static take profit, which is two times the amount of your stop loss.

See figure below:

Note** The above was an example of a buy trade using the Day trading with the Best Stochastic Trading Strategy. Use the same rules – but in reverse – for a sell trade. In the figure below you can see an actual SELL trade example using the Best Stochastic Trading Strategy.

We’ve applied the same Step #1 through Step#4 to help us identify the SELL trade and followed Step #5 to trigger our trade (see next figure).

Conclusion for this stochastic strategy:

Day trading with the Best Stochastic Trading Strategy is the perfect combination between how to correctly use stochastic indicator and price action. The success of the Best Stochastic Trading Strategy is derived from knowing to read a technical indicator correctly and at the same time make use of the price action as well. We also have training for the best short-term trading strategy. 

Our team at Trading Strategy Guides.com doesn’t claim to be perfect, but we have a solid understanding of how the market works. For those of you who are not fans of lower time frames, we recommend the “Fibonacci Retracement Channel Trading Strategy” which can be more suitable for your trading style.

Thank you for reading!

Please leave a comment below if you have any questions about Stochastic Trading Strategy!

Also, please give this strategy a 5 star if you enjoyed it!

 (77 votes, average: 4.27 out of 5)

Here is a quick video of the strategy:

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Please Share this Trading Strategy Below and keep it for your own personal use! Thanks Traders!

TradingStrategyGuides

Author at Trading Strategy Guides | Website

With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. 💓💓
Learn this Stochastic Strategy that will show you the Best Way to Trade with this Indicator