Analyzing Multiple Timeframes For Profitable Trading Decisions – Multi-period trading refers to a trading approach where the trader combines different trading periods to improve decision-making and optimize his chart analysis. The purpose of multi-period trading is to increase the profit profile of individual trades in the short-term by trading long-term indicators. We will explain what this means with concrete examples in the following article. Generally, tradesmen use one called a higher time and one called a lower time. The higher timeframe is used to analyze the longer term chart and trend framework to get a general sense of market direction and sentiment. Traders try to establish a directional trend (long, short, or neutral) on the higher timeframe and then look for specific trading opportunities in the direction of the higher timeframe on their lower timeframes. The following schedule is used for time entries and management of trading positions. Top-down Bottom-up One of the biggest mistakes traders make when performing a multi-time frame analysis is that they start their analysis on their lowest time frame and then work their way up to higher time frames. This is called the bottom-up approach. Starting your analysis on your bottom line when you place your trades creates a very narrow and one-sided view and it misses the point of the multi-dimensional context analysis. Often, traders only adopt a particular direction or view of the market on their lower timeframe and then only look for ways to confirm their view on the higher timeframe. We recommend the top-down method. With a top-down approach, a trader begins his analysis on the higher period to get a general sense of market sentiment, the context of the general trend, and become aware of important price barriers and key levels. On the lower timeframe, the trader then looks for trading opportunities based on the outlook for the higher timeframe. The trade is then fully integrated into the narrative of the overall scheme. What time do you use? The first question that always comes up when getting into multi-hour trading is which hours to use. I recommend keeping it simple, especially in the beginning. No need to reinvent the wheel. Higher timeframe Lower timeframe Trading style Weekly Daily or 4H Swing trading Daily 4H or 1H Short term swing trading Daily 30 minutes or 15 minutes Intraday trading 4H 30 minutes or 15 minutes Fast day trading 1H 15 minutes or 5 minutes Daily trading 5 min. or 1 minute Speed trading / Scalping The table above shows the most common time combinations. To improve consistency in your trading approach, I recommend choosing one combination and sticking to it for a long time. This way, you can get experience with the given time period combination and see if it is right for your trading. You want to avoid jumping between time sets because it creates conflict and creates noise in your trading. Before changing time frames, stay at least 30 to 50 trades with one time frame. 5 Multi-Timeframe Strategies Now that you’ve settled on a time frame combination, we can start using our time frame. But what exactly are we looking for in high time? Here, traders can choose from a wide variety of “notes” (or so-called consolidation factors). Depending on your preferred chart analysis approach, you can find the right fit for your multi-time strategy. In the following, I list some of the compatibility factors that are typical for a higher time frame approach: Level #1 – Breakout One of the most commonly used higher time frame concepts is one of support and resistance levels. Traders who use support and resistance levels in the higher period are usually looking for either a reversal or a long-term breakout. The image below shows the daily hourly level marked with a strong resistance level. The trader recognizes the level in the higher time frame and switches to a lower time frame on the breakout to look for opportunities to grow the trade. The image below shows the 1H period after breaking the resistance level. The price was higher after the collapse and the trader would do well to accept bullish sentiment and look for bullish trend-continuations. Level #2 – Bounce Instead of looking for a higher timeframe, traders can also choose to look for a bounce from a support or resistance level. In the image below, a strong resistance level is captured multiple times in the 4H period high. As long as the price fails to hold the level, a trader may adopt a bearish trading sentiment. Especially after seeing a bearish signal (smaller candlesticks), the trend of the higher period can be used to look for short trading opportunities on the lower period. The 15 minute time frame below shows an interesting Head and Shoulders chart during the 4H bearish candlestick. With a higher duration reversal in mind, a trader may have a trading plan to short after a successful decline (or test) of a market spike. The price fell sharply after the separation and repeated testing of the Ser and Milan pattern. The strong resistance level and bearish slope allowed the trader to adopt a bearish strategy initially, while the lower period helped the trader to time the short trade effectively. Trading signals on a lower time frame allows the trader to optimize the holding time as well as the reward:risk ratio because the trade is usually a closer stop, and a tighter entry when using a broader target based on a higher time frame. #3 Highs and lows Instead of using long-term support and resistance levels, some traders use regional highs and lows for their multi-time trading strategy. The general approach to this is similar to the support and resistance level strategy discussed earlier. First, the trader looks for a strong previous high (or low). In the image below, the price first broke above the previous high before strong momentum entered the market and the price dropped back below the high. In technical analysis, we refer to such a pattern as a fraud (or trap) because the initial breakout fails and hits the long-term breakout traders. This higher period signal provides us with a behavioral bias that we will carry into our lower period. In the lower time frame, the price forms a flag breakout shortly after the false signal. Flags are among the most popular trend-setting patterns. A break of the trend line usually indicates a continuation of the trend. The drop rate was revealed after the flag was dropped. The higher time signal duration is thus optimally used. The longer the forecast period, the lower the accuracy in general. Fakeout trading directly on the higher timeframe usually has much longer holding times. By using the following timing for input and output time, hold time can often be reduced to an absolute minimum. The shorter the retention time, the less likely other risk factors – such as news events or overnight exposure – are. #4 Candlesticks Candlestick trading is a very popular trading approach, but often when traders rely solely on one candlestick they are not powerful. To improve the quality of the signal, traders can apply a multi-period approach to the sliding indicators. The image below shows a significant slide on the high Daily clock. At the same time, the price is in a general development. In addition, a large slide also occurs right at the 30 EMA (moving average). Many traders use moving averages for their trend-following retracement trades. The slide indicator fits well into the trend statement. After identifying the bearish slide, a trader can now move back to a lower time frame to look for significant trading signals at the higher time frame. The image below shows the duration of the following 5 minutes. The blue area shows the height of the daily burning candle. After the crash, the price went higher. A trend following trader may be able to execute a long losing trade to catch the momentum of the trend. While some traders may only trade the Daily indicator blindly, a multi-timeframe approach allows the trader to find the perfect entry price and take advantage of the short-term momentum that triggers the breakout signals. #5 Pattern Instead of looking for single slides on the higher time frame, traders can also use compound chart patterns as their indicator for a higher time frame competition. In the image below, the 4H period high shows a regular trend in a sideways flag pattern. The trend line defines the lower limits of the flag pattern. After the break, the price returns to the trend line to make a new test. When the price reaches the trend line, the candlestick signals a decline – the candlestick turns and shows bullish momentum. This signal can be used to go to a low point in your mind. During the high-time retry signal, the bottom time frame of 5 minutes forms a triple top.
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