Charts and indicatorsUpdated 2 min readBy the FXNOD team
Multi-timeframe analysis: a simple three-chart method
Multi-timeframe analysis means looking at the same market on more than one timeframe before trading. The usual method uses three: a higher timeframe for the trend and major levels, a middle one for the setup, and a lower one to time the entry. Trading in the direction of the higher timeframe filters out many poor trades.
The three roles
| Chart | Job | Question it answers |
|---|---|---|
| Higher | Context | What is the trend, and where are the big levels? |
| Middle | Setup | Is there a trade here that agrees with the context? |
| Lower | Entry | Exactly where do I get in and place the stop? |
Choosing the three
| Style | Higher | Middle | Lower |
|---|---|---|---|
| Swing trading | Weekly | Daily | 4-hour |
| Day trading | Daily | 1-hour | 15-minute |
| Short-term | 4-hour | 30-minute | 5-minute |
A ratio of about four to six between neighbouring charts works well. Charts that are too close show the same thing. Charts that are too far apart have little to say to each other.
Working top down
Higher chart first
Mark the trend direction and the levels. Decide which side you will trade.
Middle chart
Wait for a pullback or pattern in that direction near a level.
Lower chart
Wait for the turn, then enter with the stop beyond it.
Manage on the middle chart
Do not let the lower chart's noise shake you out.
When the charts disagree
An uptrend on the daily and a downtrend on the 15-minute is normal: the lower chart is showing a pullback. The higher timeframe wins for direction. If they conflict and no pullback explanation fits, there is no trade. Standing aside is a valid result of the analysis.
Mistakes
- Looking at so many timeframes that one always supports the trade you want.
- Finding the entry on a low chart and then searching upwards for a justification.
- Using a lower-chart stop with a higher-chart target and no plan for the journey between.
- Switching down to a tiny timeframe after entry and panicking at ordinary movement.
On synthetic indices
A random series looks like a trend on one timeframe and a range on another without either meaning anything. Multi-timeframe agreement there is coincidence.
Questions people ask
- How many timeframes should I use?
- Three is enough: context, setup and entry. More creates conflict without adding information.
- Which timeframe matters most?
- The higher one, for direction. Trade with it and use the others for timing.
- What if the timeframes conflict?
- Treat the lower chart's move as a pullback within the higher trend, or do not trade.
Put it on a chart
Trade Pilot's chart has moving averages, RSI and Bollinger Bands, and a bot in Bot Forge can use indicators to choose its side. Try both on your Deriv demo account.
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