Lessons › Advanced track › Multi-timeframe analysis

World 10 · Advanced track · lesson 8 · level 4

Multi-timeframe analysis

Look at the big map first, then zoom in to choose your step.

In one line

The hourly chart screams 'down' while the daily chart calmly says 'up'. Which one do you check first?

Explained simply

Planning a trip, you first look at the country map to pick the road, then the street map to find the exact turn. Multi-timeframe analysis works the same way: the bigger chart shows the direction and key levels, and the smaller one shows where to step in.

The lesson

Multi-timeframe analysis uses a higher timeframe, such as the daily chart, to find the trend and key levels, and a lower timeframe, such as the 1-hour chart, to time entries and place tighter stops. A common rule of thumb spaces timeframes by a factor of about four to six, such as weekly and daily charts, or daily and 4-hour charts in markets that trade around the clock. Trades that agree with the higher-timeframe trend often have more room to run, but that is a tendency, not a rule. A tighter lower-timeframe stop changes your position size, so recalculate it every time.

A worked example

Illustrative example: the daily chart is in an uptrend and pulling back to support near 480. A daily-only plan buys on a daily close above 500 with a stop below the swing low at 460, risking 500 - 460 = 40 per share. The 1-hour chart shows an earlier bullish break at 490 with a stop at 482, risking 490 - 482 = 8. With 1% risk on a 40,000 dollar account, which is 40,000 x 1 / 100 = 400 dollars, the daily plan allows 400 / 40 = 10 shares and the hourly plan 400 / 8 = 50 shares. The tighter stop allows more shares, but it is also easier to hit, so the size must always be recalculated.

The same idea at four levels

1. Beginner. Look at a bigger timeframe first for direction, then a smaller one for the entry.
2. Foundation. The higher timeframe gives the trend and key levels, and the lower timeframe gives the entry trigger and the stop.
3. Intermediate. Space timeframes about four to six times apart, like weekly and daily, or daily and 4-hour in round-the-clock markets.
4. Advanced. A lower-timeframe stop is tighter, so the same 1% risk allows a bigger position, but it is also easier to hit, so recalculate the size and expect more small stop-outs.
5. Expert. Carry key levels down from the higher timeframe, take lower-timeframe triggers only in the higher-timeframe direction, and stop adding timeframes once two agree, because extra charts mostly add conflict.

Mistakes to avoid

• Checking so many timeframes that they always disagree and you never act.
• Moving the stop to the lower timeframe but forgetting to recalculate the size for that stop.
• Taking lower-timeframe signals against the higher-timeframe trend.

Goal of this lesson: Use a higher timeframe for direction and key levels, and a lower timeframe for entry timing.