Multiple Time Frame Analysis

Analyzing multiple time frames provides a comprehensive view of market conditions. What looks bullish on one time frame may be bearish on another—understanding this prevents costly mistakes. [DEFINITION] Multiple Time Frame Analysis: Examining the same security across different time periods (e.g., weekly, daily, hourly) to understand both the major trend and shorter-term opportunities within it. ### The Time Frame Hierarchy **Higher time frames:** - More reliable signals - Slower to change - Show the "big picture" **Lower time frames:** - More noise - Faster signals - Show entry/exit timing [KEY] Higher time frame trend typically wins. Trade WITH the larger trend, not against it. ### Common Time Frame Combinations **Position Traders:** - Monthly (major trend) - Weekly (intermediate trend) - Daily (entry/exit) **Swing Traders:** - Weekly (major trend) - Daily (intermediate trend) - 4-Hour (entry/exit) **Day Traders:** - Daily (context) - Hourly (trend) - 15-minute (entry/exit) [TIP] Use a 4-5x ratio between time frames. Example: Weekly (1 week) → Daily (1 day) → 4-hour (4 hours). This provides meaningful different perspectives without too much redundancy. ### Aligning Time Frames **Highest probability setups:** All time frames aligned in same direction. [EXAMPLE] - Weekly: Uptrend above 50-week MA - Daily: Uptrend above 50-day MA, pulling back to support - Hourly: Showing bullish reversal candle at daily support All three time frames suggest buying—high-confidence setup. **Lower probability but still tradeable:** Higher time frame trending, lower time frame counter-trend for entry. [WARNING] Never trade AGAINST the higher time frame trend unless you have a specific short-term strategy. Day trading against a weekly downtrend is fighting the larger force. ### Practical Application **Step 1:** Determine trend on highest time frame **Step 2:** Identify support/resistance on middle time frame **Step 3:** Find entry signals on lowest time frame [EXAMPLE] Step 1 (Weekly): Clear uptrend, price above rising 20-week MA Step 2 (Daily): Price pulling back to 50-day MA, also a previous resistance-turned-support level Step 3 (4-hour): Bullish engulfing candle forming at the daily support Entry: Buy on 4-hour bullish signal Stop: Below daily support level Target: New highs or measured move ### Conflicting Time Frames When time frames disagree: - Trust the higher time frame for trend - Use caution on signals against higher time frame - Consider sitting out until alignment improves [EXERCISE] Weekly chart shows downtrend. Daily chart shows a rally forming with higher highs. 4-hour chart shows bullish momentum. Should you buy? |ANSWER| Caution warranted. The daily rally is a counter-trend bounce within a weekly downtrend. The rally may continue short-term, but the odds favor the weekly trend eventually resuming. If trading, keep position small, take profits quickly, and don't expect the move to last. [SCENARIO] You buy a stock based on a bullish daily chart. The trade immediately goes against you. You zoom into the 15-minute chart and see bearish momentum. Should you cut the loss? Be careful not to micro-manage based on lower time frames. Your original trade was based on daily—give it time to play out. The 15-minute noise may reverse. However, if your daily stop level is hit, that's a different story. Trade the time frame you analyzed.