Using technical indicators for binary options trading is of utmost importance. That’s because, with the help of a technical indicator, traders can easily create winning trading strategies. Also, it becomes easy to understand the nature of the market.
But the issue is one can find numerous technical indicators, which can be confusing. If you want to save yourself from this uncertainty, choose a Multiple Time Frame Analysis (MTA) indicator.
Most of the time, traders use this indicator to know the market’s profit entry and exit points. It can be used by new and professional traders.
While some find this indicator a little complicated, you can easily understand its theory and uses. And once you have understood the concepts of Multiple Time Frame Analysis, you will use it more often than you realize.
This post highlights the essential aspects of the Multiple Time Frame Analysis indicator that you can use to make profitable trades.
What is multiple time frame analysis?
Multiple Time Frame Analysis is a well-recognized form of technical indicator that almost all traders use. Why are we saying so? That’s because this indicator helps in determining the exit and entry points in the binary options trading market.
This top-down approach helps traders to gauge short and long-term trends in the market. This technical indicator is even helpful when using small time-frame charts.
When you switch between two trades using the Multiple Time Frame Analysis indicators, it helps you better understand the market and the asset. Also, if you want, you can accept or reject the trade. It means your chances of making mistakes and losing a trade decreases.
Whether you want to become a professional trader or have been trading for a while, using Multiple Time Frame Analysis is extremely important. That’s because, without this tool, you will lose several profitable stop levels and entries.
While MTA is a great indicator, it’s overlooked by the traders who want to get an edge over the binary options market. When you are using this indicator, it’s important to remember that it can create confusion. But you can avoid uncertainty by having proper knowledge of the market.
More simply, you can understand Multiple Time Frame Analysis as a tool for analyzing a particular asset in different time frames. By doing this, traders get a clear idea of market movement.
Example of multiple time frame analysis
Here’s a quick example that will show how Multiple Time Frame Analysis works.
Imagine a situation where you are trading an asset, say gold. It has a time frame of 10 minutes. In this case, the higher time frame is 20 minutes, and the lower time frame is 1 minute.
If the 20 minutes and 10 minutes’ time frame charts show a downtrend in the market, a short position is taken at the final stage of pullback, i.e., an uptrend in the 1-minute time frame.
Similarly, if the 20 minutes and 10 minutes’ chart exhibits an uptrend, a short position is taken at the final stage of retracement, i.e., a decline in the 1-minute time frame.
How many time frames can you follow?
While analyzing the trading chart, any trader can end up overanalyzing it. This situation is called analysis paralysis. It can further lead to conflicting views as traders get confused.
But don’t worry because you can avoid this trap by understanding how many time frames are needed to build a strategy. This way, you can use the best trading strategy by utilizing the most appropriate time frame.
Ideally, it’s advised to have three-time frames. Because this way, you will not get overwhelmed and lose profitable trading opportunities. Also, while using this time frame strategy, remember the “rule of four.”
The rule of four can help you know about smaller price movements in the market by uncovering details. This simple rule suggests that as a trader, you must identify the medium-term period. After that, use the term period as a standard to know how long average trade is maintained.
Next, you can move towards choosing a short-term period. Remember that this term period should be one-fourth of the intermediate period. Lastly, you can end the process of selecting time frames by selecting a long-term period, which should be four times the intermediate period.
Long time frame
A long time frame requires traders to keep an eye on the economic trends. That’s because, through this, traders can know about the movement of asset’s price direction in a clearer way.
This time frame generally establishes a dominant trend. In this, long-term traders make a move from a few weeks to a few years. Also, such traders check the market analysis through daily and weekly charts.
The positive side of a long time frame is that you won’t have to watch the market intraday. That being said, long time frames result in fewer traders, which then results in limited profitability. However, you get enough time to plan each of your trading strategies.
If you can wait for a long time and have a bigger account, you can try your luck with a long time frame.
Short time frame
Unlike the long time frame, this one offers more trading opportunities. That means more profit. But this can also increase the risk of losing money.
Generally, traders use this time frame to have a clear and better idea about the price fluctuations. Besides price fluctuations, a short time frame also helps in understanding the market volatility.
Medium time frame
It’s the last time frame, and just as the small time frame, it also offers better trading opportunities to the traders. Ideally, this time frame is used by long-term traders as it offers a sense of a long time frame and a short time frame.
Besides long-term traders, this time frame is also used by traders who run short on time. That’s because it helps to track the smaller moves within a broader trend.
Instead of a single time frame, you can use all these time frames to create a winning strategy. Also, using all these time frames can help you identify support and resistance levels.
How does multiple time frame analysis work?
As we have already mentioned, some traders find Multiple Time Frame Analysis tools a little complicated. But one can quickly understand and execute it. You can start the process by finding a medium time frame. After that, you should find out the short time frame and long time frame.
For instance, you want to hold a trade for around 8 hours. In this case, 8 hours becomes the medium time frame and 90 in the short time frame. Similarly, one day will be a long time frame.
One interesting thing is that by using a single indicator, you can identify different time frames. Also, if you want to get an idea of the general trend in the market, start your analysis with a longer time frame.
A medium time frame can be used for identifying the fluctuations in the general trend and a short time frame helps to conclude the market. If you enter the market when short and medium time frames are moving, you can place a winning trade.
Multiple time frames help to understand the right time frames so that you do not trade with trends against a larger time frame. It further offers an edge to your trading.
Multiple time frame analysis for day traders
If you are a day trader, it would be helpful if you used a short time frame. Since you have the entire day to understand the nature of the market, you should not miss out on the details.
Generally, day traders use a one-hour chart to understand how a trend is established in the market. Just as a one-hour chart, a 15 minutes’ chart also helps day traders to understand the price movement of assets over time.
Multiple time frame analysis for swing traders
If you are a swing trader, you must avoid getting into the market details as you have less time. It would be helpful to check the daily chart to get an overall idea of the trend and then the four-hour chart to spot market entries.
Conclusion
Multiple Time Frame Analysis, MTA, is one of the widely accepted indicators that beginners and professional traders use for making a winning trade. This indicator basically helps in identifying the entry and exit points.
With the help of MTA, you can have a birds-eye view of the market movement. That means you have an advantage. When using this indicator, don’t forget to combine it with a detailed trading strategy. That’s because then you can make a better and more profitable trade.
Although several traders ignore its benefits and use, you must not do it. Using Multiple Time Frame Analysis tools can improve your position and help you make successful trades.
Also, remember that using this tool can lead to confusion. But you can eliminate the confusion by having detailed market knowledge. So, hurry and place a winning trade by using this indicator.
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