Admiral Markets Group consists of the following firms:

Admiral Markets UK Ltd

Regulated by the Financial Conduct Authority (FCA)
  • Leverage up to:
    1:30 for retail clients,
    1:500 for professional clients
  • FSCS protection
  • Negative balance protection
CONTINUE

Admiral Markets AS

Regulated by the Estonian Financial Supervision Authority (EFSA)
  • Leverage up to:
    1:30 for retail clients,
    1:500 for professional clients
  • Guarantee Fund
  • Negative balance protection
CONTINUE

Admiral Markets Cyprus Ltd

Regulated by the Cyprus Securities and Exchange Commission (CySEC)
  • Leverage up to:
    1:30 for retail clients,
    1:500 for professional clients
  • ICF protection
  • Negative balance protection
CONTINUE

Admiral Markets Pty Ltd

Regulated by the Australian Securities and Investments Commission (ASIC)
  • Leverage up to:
    1:500 for retail clients
  • Volatility protection
  • Negative balance protection
CONTINUE
Note: If you close this window without choosing a firm, you agree to proceed under the FCA (UK) regulation.
Note: If you close this window without choosing a firm, you agree to proceed under the FCA (UK) regulation.
Regulator fca efsa CySEC asic

Aligning Trend Momentum and Direction: MTF Trading

November 23, 2017 14:21

Dear traders,

The term MTF stands for Multiple Time Frame Trading. MTF trading is a process of looking into different time frames and aligning both trend, momentum, and direction.

Inherently, Forex trading tends to have shorter time frame than securities, bonds, or other markets. Momentum push can be huge for some Forex pairs. This is more exaggerated due to the use of leverage. The leverage in Forex trading is commonly used, and it spikes up borrowing costs, pushing traders towards using shorter time frame strategies.

I frequently use the (in)famous saying the trend is your friend, and I believe it. While the underlying intent is to emphasise trading with the trend only for it to be your friend, it will really come down to your ability to time entries in the market, especially because it is needed for the time frame you wish to trade on. In order for the MTF approach to be successful, we need to align:

  • Trend
  • Momentum/Direction/Retracement
  • Entry

What we need to do is piggyback the momentum from higher time frames into a lower time frame. For this to work, especially for gauging trend and momentum, we might need to use the MACD indicator, and I will explain how.


MACD Indicator

The MACD stands for Moving Average Convergence Divergence. It is a trend-following, trend-capturing momentum indicator that shows the relationship between two moving averages of prices. The MACD was created by Gerald Appeal in the late 1970s. The MACD indicator formula is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called signal line, is then plotted on top of the MACD, usually marking triggers for buy and sell signals.

Another version of the MACD is the so-called 2 Line MACD, which can also be combined with great trading strategies. The difference is that the default MT4 MACD indicator lacks the fast signal line (instead of showing the fast signal line, it gives you its histogram).

For trading, it's completely irrelevant as long as you use it with other tools that work in conjunction with the MACD itself. When the red and blue MAs cross on the 2 Line MACD, it is equivalent to the red MA line crossing the green histogram on the default MT4 MACD. There is no lag time with respect to crosses between both indicators, they are timed identically.

Trend

Trend is a series of Higher Highs and Higher Lows (uptrend), or a series of thrust and pullback. Very occasionally, the trend can be shadowed by the so-called whipsaws. In that case, the trend is not seen clearly. Because of that, I have been using my own developed MACD indicator that shows trend in the following way:

Higher Time Frames

Monthly, Weekly, Daily

The histogram is thick blue for uptrend or thick red for downtrend.

Source: ecs.MACD Indicator



H4, H1, M15, and Lower Time Frames

The histogram is thick blue, and the blue MACD line is ABOVE the 0 line for uptrend. For downtrend, the histogram is thick red and the blue MACD line is BELOW the 0 line.

Uptrend

Source: ecs.MACD Indicator




Downtrend

Source: ecs.MACD Indicator

Momentum

When determining the trend on a specific time frame, we need to move one time frame lower for finding the momentum. In order to align trend and momentum, we need to have an opposite move from the trend.

To find an entry, we must first wait for a retracement ( the buy-low-sell-high principle). The retracement on the MACD is indicated by a thinning histogram.

For example, if we have an uptrend on a daily time frame indicated by a thick blue histogram, then 4h should have a thinning histogram. That indicates a 4h retracement.

Source: ecs.MACD Indicator

By aligning a daily trend with a 4h momentum, we can then move on to lower time frames and search for an entry.

Entry

For entries, some traders would use a momentum time frame, whereas others might want to drill down to a lower time frame and search for an entry. In the case of the Daily trend, H4 retracement, the entry time frame is usually H1, M30, or M15. Traders might want to use different price action tools, confluence, candlesticks, or whatever method they see fit for an entry.

Entry time frame is important as this is when and where entries are made. Effectively, the entry time frame is using higher time frames momentum and trend for a decision.

MACD 2 Line

As the ecs.MACD uses a modified OSMA indicator, traders might want to use the MACD 2 Line indicator as a replacement that can be easily found on the Internet for free. I personally sent the indicator to a considerable amount of traders who requested it on my webinars.

Source: MACD 2 Line Indicator

One of the first books I read in regards to the famous MACD indicator was William Blau's Momentum, Direction and Divergence that helped me embrace a lot of principles and incorporate them into the MTF and MACD analysis. Of course, a lot of screening time and effort has been put into the research as well.

MTF trading can be a great asset, whereas riding the momentum and trend from higher time frames can prove very fruitful when mastered. Come and join our webinars to see how I trade the price using the MTF approach!

Cheers and safe trading,

Nenad


Admiral Markets account


Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.