For technical analysis using multiple timeframes, the most commonly used charts are 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, and daily.

The key to using multiple timeframes in your trading is to focus on one timeframe first, and then move up to the next larger timeframe to make strategic decisions. 

By combining different timeframes, you can make more informed decisions about your trading strategies.

Technical analysis is one of the most important aspects of trading. By using technical analysis, you can gain a better understanding of how the market works and make informed decisions about where to invest your money. In this guide “technical analysis using multiple timeframes”, we will discuss what technical analysis is, why it’s important to use multiple timeframes, and how to use different timeframes to make informed investment decisions. 

What is technical analysis

Technical analysis is the study of past price movements to identify patterns that can be used to predict future price action. Technical analysts believe that all relevant information is reflected in prices, and that price movement patterns tend to repeat themselves over time. By identifying these patterns, technical analysts aim to forecast future market direction.

Core idea behind technical analysis 

Technical analysts work with a different approach. The core idea behind technical analysis is that historical price action may indicate how the market is likely to behave in the future.

Technical analysts don’t try to find out the intrinsic value of an asset. Instead, they look at the historical trading activity and try to identify opportunities based on that. This can include analysis of price action and volume, chart patterns, the use of technical indicators, and many other charting tools. The goal of this analysis is to evaluate a given market’s strength or weakness.

With that said, technical analysis isn’t only a tool for predicting the probabilities of future price movements. It can also be a useful framework for risk management. Since technical analysis provides a model for analyzing market structure, it makes managing trades more defined and measurable. In this context, measuring risk is the first step to managing it. This is why some technical analysts may not be considered strictly traders. They may use technical analysis purely as a framework for risk management.

The practice of technical analysis can be applied to any financial market, and it’s widely used among Stock/cryptocurrency traders. 

The concept of charting timeframes

A charting timeframe is the amount of time that each candlestick or bar on a price chart represents. The most common charting timeframes are 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, and daily. However, charts with longer or shorter timeframes can also be used.

The main difference between charting timeframes is the amount of time that each candlestick or bar represents. For example, a 1-minute chart will show each candlestick or bar as representing 1 minute of price action, while a 4-hour chart will show each candlestick or bar as representing 4 hours of price action.

How to use different timeframes to make decisions 

• Look at the overall trend on a longer-term chart: If the market is in a long-term uptrend, you should look for buying opportunities. 
• Look for potential entry and exit points on a shorter-term chart: Once you’ve identified the overall trend, you can look for entry and exit points on a shorter-term chart. 
• Use technical indicators: Technical indicators can be used to help you make decisions about your trading strategy. 
• Manage your risk: It’s important to manage your risk when trading. 
• Have a plan: Having a trading plan can help you make better decisions and stay disciplined. 
• Maintain a limit: Focus on no more than trading 3 time frames.

Why it’s important to use multiple timeframes when trading 

By performing technical analysis using multiple timeframes, traders can get a better sense of the current market trend as well as potential reversals. This is because different timeframes can provide different levels of detail and can also highlight different aspects of price action. 

For example, a long-term chart can be used to identify the overall trend, while a shorter-term chart can be used to identify potential entry and exit points. By combining both types of analysis, traders can make more informed decisions about their trading strategies.

There are several benefits to using multiple timeframes when trading:

• You can get a better sense of the overall market trend.
• You can identify potential entry and exit points.
• You can make more informed decisions about your trading strategies.
• You can better manage your risk.
• You can improve your chances of success.

Keep in mind that the longer-term trend should always take priority over the shorter-term trend when working with multiple timeframes. Therefore, if you see a bullish trend on a longer-term chart, you shouldn’t sell just because there’s a bearish trend on a shorter term chart . You should hold off taking any action until the shorter-term trend has reversed.

What timeframe you should use for technical analysis

Here are some general guidelines for using different timeframes when making trading decisions:

• If you’re day trading: Use from 1-minute to 1-hour charts, to make your trading decisions.
• If you’re swing trading: Use from 1-hour to daily charts, to get a better sense of the market trend.
• If you’re investing for the long term: Use daily, 2-day, 3-day, weekly or a monthly candle to identify the overall market trend.

Remember, the key is to use multiple timeframes to get a better sense of the market. By combining different timeframes, you can make more informed decisions about your trading strategies.

Example of technical analysis using multiple time frames

Here’s an example of multiple time frame analysis. Jane has an interest in foreign exchange (forex) trading. She finds that the EUR/USD pair is the most interesting to trade and that the 1-hour chart is the most familiar to her after practicing with virtual money.

She finds the 15-minute charts to be too brisk and the 4-hour charts to be too slow. Jane jumps up to the 4-hour EUR/USD chart first thing in the morning. She can use this to better understand the bigger picture. The pair, in her opinion, is rising. Therefore, Jane knows that she must always be on the lookout for BUY signals. 

Now she shifts her focus to the time frame she finds most useful, the 1-hour chart, in order to locate an entry point. The Stochastic indicator is another one she activates.

A doji candlestick has formed, and the Stochastic has just moved out of oversold territory, as Jane discovers when she returns to the 1-hour chart.

However, Jane isn’t completely certain; she wants to make sure she has a great entry point, so she looks at the 15-minute chart to narrow down on a better opportunity. Now focused on the 15-minute chart, Jane notes that the trend line seems to be holding rather firmly.

Stochastic is also indicating oversold conditions on the 15-minute time period. She thinks it would be a good moment to go in and buy.

Indeed, the rally continues, with the EUR/USD pair continuing to climb the charts. If Jane had joined the market immediately above 1.2800 and left the trade open for two weeks, she would have earned 400 pips!

Naturally, there is a restriction on the number of timeframes that may be examined at one go. What you don’t need is a bunch of charts competing for your attention, each claiming to show you something different. When performing multiple timeframe analysis, include at least two and no more than three timeframes. Finding what works best for you is the most important thing.

Limitations involved

 Technical analysis using multiple timeframes may not always be perfect. There are a number of limitations to keep in mind: 

• Technical analysis only looks at price data, so it doesn’t take into account the underlying fundamentals of a company. 
• Technical analysis is based on the assumption that markets are efficient, but there is evidence to suggest that markets are not always efficient. 
• Technical analysis is based on the principle of past performance, so it doesn’t necessarily predict future market movements. 
• Technical analysis requires a lot of experience and knowledge to be used effectively. 
• Technical analysis can be difficult to understand and it can be easy to make mistakes. 

Despite these limitations, technical analysis can still be a helpful tool for making trading decisions. When used correctly, technical analysis can give you an edge over other traders who are not using it. 

Important considerations regarding multiple timeframe analysis

Keep in mind that a longer-term trend has had more time to solidify, making a reversal in the pair’s direction possible, usually when there is a dramatic shift in market sentiment.

Furthermore, in longer time periods, the significance of support and resistance levels increases.

Remember, when performing multiple time frame analysis, choose a time frame that suits you best, and then go up to the next larger one.

There, you may decide whether to go long or short strategically, taking into account the market’s range or trending conditions.

After that, you may make strategic judgments on when to join and exit the market (place stop and profit target) by going back to your desired time frame (or even lower) .

If you want to have a closer look at a certain area, you may zoom in and out to get a better feel for where to enter and leave.

Adding the dimension of time to your technical analysis will make you gain a competitive advantage over other traders who have tunnel vision and just trade on one time frame. 

Frequently Asked Questions

Conclusion

Technical analysis using multiple timeframes is a useful tool for traders of all experience levels. By looking at price action across different timeframes, traders can identify both short-term trading opportunities and long-term investment prospects. Multiple timeframe analysis can help traders make more informed decisions about their trades.