- What is multi timeframe trading?
- What is the purpose of multi timeframe analysis?
- Which timeframes should be used?
- Important thing to know
- What do you think?
What is multi timeframe trading?
As the name suggests, multi timeframe trading is more like a trading strategy that traders use, where they use not just one single timeframe to make trading decisions, but rather, they use 2, or even 3 timeframes to make trading decisions.
I am sure you will have seen traders having charts of two timeframes open on their trading platform.
It appears as if they read both charts simultaneously and are looking for opportunities to trade and trade at the right time.
Now, traders don’t use this style of trading for no reason, it actually adds a lot and can help traders find really good trades. More on that ahead.
There are also some rules in such a type of trading that you should be knowing and if you read this blog post all the way to the end, then you’ll have a decent idea about this and you can try it out yourself too.
What is the purpose of multi timeframe trading?
It is always said that the higher timeframe you go to, the better it gets. But what exactly gets better?
There are two things, first, there is less noise, which means that price is clear, as compared to lower timeframes, and second, higher timeframes will always be superior to the lower timeframes.
You only tell me, a trend on the daily frame will have more importance than a trend on saying the 15-minute timeframes, right?
So the basic purpose of multi-timeframe trading is to trade on the lower timeframe only, but, it will be along with the trend on the higher timeframe. Is that confusing?
See this EURUSD daily chart.
You can see here that it is in a very clear downtrend right.
Now, would it be a smart decision to go long anywhere in such a downtrend? No right.
But you may not even get many trading opportunities to trade if you stick with this daily timeframe.
That’s why we go to a lower timeframe to look for trading opportunities and guess what trades will we take? Yes, only shorts.
We then switch down to the 4 hour timeframe.
Look at these nice trade opportunities we would have got.
We have a pattern formation on the lower timeframe, that is the 4-hour timeframe, and we also had the higher timeframe trend confluence to give us more confidence for this trade.
This is exactly why traders trade multiple timeframes and that’s how it looks when you actually trade them.
Which timeframes should be used?
If you remember, in the beginning, I said that there are some rules that you should know about multi-timeframe trading. I’ll get to one of those now.
Now that you know what multi-timeframe trading is, you might ask, which timeframes should be used?
Remember this thumb rule of 3x to 4x. Don’t worry, I’ll explain.
Say that you are using the Daily timeframe as your higher timeframe, then the lower timeframe would be the 4-hour timeframe.
The 3x to 4x rule would apply here as in a day there are going to be six 4 hour candlesticks right and it’s more than our 3x to 4x rule.
Now, if the 4-hour timeframe is your higher timeframe, then the 1-hour timeframe will be your lower timeframe.
Here’s a flow chart that you can refer to in case you need to know which timeframes you should use exactly:
Monthly > Weekly > Daily > 4H > 1H > 15M > 5M > 1M
As you can see, the monthly is the biggest, and we go all the way down to the 1-minute timeframe and each one of them follows the 3x to 4x thumb rule.
Important thing to know
I’ll tell you a couple of important things you should know about multi-timeframe trading and here’s the first one, don’t use more than 3 timeframes at a time.
Here’s an example, you can use the Daily timeframe to see the major trend of the market, that is, whether uptrend, downtrend, or even if the price is stuck in a range.
You would then go down to the 4-hour timeframe and will wait for the price to have bullish moves.
Lastly, you will go down to the 1-hour timeframe to look for trade entries.
But what I wanted to say is that don’t jump to a 4th timeframe or else you are just going to get confused and might just have analysis paralysis.
The other important to note here is that you should always stick with the trend on the highest timeframe. If you do this, then you are going to have very high hit rate trades.
Thirdly, trends will change on the highest timeframes and they will change without giving you any indication.
In such cases, you might face losses due to the shifting nature of the market but this should not discourage you at all.
Once you understand this concept of multi-timeframe trading and build a strategy around it, then you are actually going to have a very strong setup with you and can capitalize a lot.
What do you think?
What do you think, is multi-timeframe trading a good way to trade, and would you try it out?
Do let me know what strategy you build around it and about your experience with it.
I would appreciate it if you shared this blog post with others and maybe they could learn this trading style too.
Feel free to ask me any questions in the comments section below, I’ll get back to them at the earliest.