Take a Top down approach and utilize Multi Time Frame Analysis

Take a Top down approach and utilize Multi Time Frame Analysis

Regardless of whether you are a Daytrader, Swing Trader, or Long Term Position Trader, you should always try to take a top down approach to trading the markets. What this means simply is that you start with a higher time frame chart and zoom down from there to your trading time frame chart. This will help give you a wider lens from which view price action.

Many traders make the mistake of making trading decisions based solely on the time frame in which they are trading, meaning the signal time frame.

For example, if they see a hammer candlestick pattern on a 4 hour chart, they take the trade off that time frame without even considering what might be going on in the next higher time frame, which would be the daily chart in this example. In addition, a trader who would like to trade that hammer signal that showed up on the 240 minute chart could zoom down to the 60 minute chart to get a better trade entry.

In order to increase the probability of having a winning trade, its always wise to analyze multiple time frames. What often happens is that you are able to either filter out bad trades based on higher time frame chart analysis or get further confirmation on your trade. Either way, you will likely increase your chances of a winning trade by taking a Top down analysis approach. 

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