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Tuesday, February 21, 2012

Learn Trading Multi Time Frame Analysis

Learn Trading Multi Time Frame Analysis
Multi time frame analysis is a very important aspect of technical analysis. When indicators show the same trend direction over multiple time frames, it generally suggests a higher probability of trend continuation. Alternative settings obviously shows opposite convictions but only for a shortened period.

In the field of time frame analysis, some argue that larger time frames will dominate smaller ones, while others say that smaller time frames harmonize, and will overcome larger time frames. ZLthink that this is a rich field for exploration, but the only conclusion that we have made is that alignment between time frames tend to enhance a signal’s potential. And this is a more important conclusion, then the former debate.

Let’s look at the FBM KLCI  daily chart as of yesterday 20 Feb 2012. We begin with the daily timeframe chart:
A change in indicator parameters can alter a trend readings dramatically.
Clearly the FBMKLCI is bullish, with a great setup looking to resume after some consolidation as denoted by the alternative MACD 6,12,6 parameters. While the daily chart is bullish, a trader should find out how the longer time frames are doing. Perhaps there is an oncoming train/trend that we are walking into? We want to make sure the larger time frames paint a similar story. 

Let’s look at the FBM KLCI weekly chart as of yesterday 20 Feb 2012 :
Well, it looks like a bullish set up as well. OK, maybe the FBMKLCI weekly chart is not mega bullish in outlook but do you spot any sell signals or reversal pattern anywhere? I can't ..... 

There is therefore multi time frame alignment when we compare the daily and weekly charts, increasing the trader’s bullish conviction.

Assume the daily chart is bearish (for the moment in a bearish retracement), but the weekly chart is in a non-bear trend retracement (if any), we will be very wary of a bullish trend resumption and may not want to hold convictions on to a bearish daily trade for long. Some traders may wish to wait for multi time frame alignment for a higher probability trade.

What can we expect in the coming weeks?
With that in mind, the weekly chart also warns of a minor retracement soon, since  Price is also running into resistance at 1566.  2 failed attempts to take out 1566 Resistance give creedence some measures of consolidation is expected.


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