Multi-timeframe analysis

A perfect-looking buy on the 15-minute chart is often just a small bounce inside a 4-hour downtrend. Looking at one timeframe is like reading one page of a book and guessing the plot.

Three timeframes, one picture

M15

H1

H4

The last H4 candle (highlighted) is made of the last four H1 candles, which are made of the last sixteen M15 candles.

The method is called top-down. Pick three timeframes about four to six times apart, for example D1 / H4 / H1, or H4 / H1 / M15:

1. Higher timeframe: the trend and the major levels. This decides which direction you are allowed to trade.
2. Working timeframe: the setup. Pullbacks, patterns, the zone you want to trade from.
3. Entry timeframe: the trigger. A candle signal or a small break that times the entry and tightens the stop.

Each lower chart is the inside of a candle on the chart above it, as the stacked view shows.

Try it

M15H1H4

The same 24 hours as 24 one-hour candles. Each one contains four M15 candles.

Switch between timeframes and ask at each one: what is the trend, and where is the nearest level? Then check whether the answers agree.

Notice how a move that looks dramatic on M15 is a single candle on H4. The higher timeframe decides what matters.

When they disagree

If the higher timeframe is down and the working timeframe shows a buy setup, you are looking at a counter-trend trade. These can work, but they fail more often and run less far. For most traders the right answer is to skip it and wait for a setup that agrees.

Quick check

1. Question 1 of 3

   What does the higher timeframe decide in a top-down method?

   AThe exact entry priceBThe direction you are allowed to trade and the major levelsCThe position size

Go deeper: Multi-Timeframe Analysis: A Simple Top-Down Method