What is Multiple Timeframe Technical Analysis?
Multiple timeframe technical analysis is a top down technical approach that gives an investor or trader much more perspective than simply viewing one chart. Although price charts of different timeframes often contradict in their signals, with practice the investor/trader becomes efficient at spotting higher probability opportunities.
First and foremost, I want to state that it is very important to have a well thought out fundamental reason for why you want to be involved in the asset you're working with, you should have a strong knowledge of the asset and the fundamental drivers of it, if you're using your discretion to make trading decisions this is of upmost importance. If your a college athlete maybe you know a lot about footwear and apparel, if your a doctor maybe you know a lot about medical supply companies, if your a teacher maybe you know a lot about educational software developments, you get the idea. The point is, stick to what you feel comfortable with first because fundamentals are really the most important drivers of markets, discretionary traders should view charts as timing tools and nothing more. You may feel all you need is charts, but I warn against this approach because the human mind will find patterns in everything and it's extremely important to remain objective and emotionally detached from your ideas so you dont ride losers and cut winners short, which seems obvious but when your in an emotional state while moneys on the line its very easy to find yourself on the wrong side of the market.
I chose to use EURUSD as my example chart for this post because I've position traded the currency markets for many years and its the most heavily traded asset by volume in the world hands down, making the price action very clean.
Fundamentally I like shorting the dollar because I feel with inflation and rate hikes already priced into the market that there is a greater possibility of the dollar falling than the dollar rising in the short/medium term, I feel buying the dollar on rate hikes would be a one dimensional novice perspective held by someone (retail traders) who don't fully understand this markets dynamics.
On to the charts...
First you want to choose your timeframes. Because I am investor and a long term position trader I use the Quarterly, Monthly, Weekly, and Daily timeframes. These timeframes individually are also popular among longer term traders making the signals more reliable.
Second, you want to start with your highest timeframe, mine being the quarterly I'll look there first, what I see here is an upward breakout 2 years ago in January 2020, whereafter we trended up for a few months, and then began another downward trend that some would argue is a pullback from this perspective, which I'm inclined to agree with because we are currently sitting right on support of that 2020 breakout as of this quarter (which will end in 10 days.)
Next we will go on to the monthly as we work our way top down to shorter term timeframes. As I highlighted, the monthly is finding support at the breakout level at the 1.20 level as shown in the last 2 months. Last months candle gave back 30 percent before it closed after touching the 1.20 level and this months candle is very small and forming what is known as a hanging man or a doji, names vary, the idea is to recognize this as buying demand, not a pattern to trade that works every time.
The Weekly chart shows with more clarity what we have just discussed. Only one week out of the last 6 was able to even make it down to 1.20 because demand is picking up at this support level.
Lastly, on the Daily, you can clearly see where the market fell to the extreme, demand picked up, forcing EU back into a consolidated range at a higher level. By objectively applying the fib trend tool you can see scaled buying taking place at the lower levels, signaling that demand is increasing here as well.
Does that mean that this will go to the moon tomorrow? Absolutely not, I never expect the market do exactly what I think it may do, it seldom happens that way, markets are highly efficient and highly random, especially in major currencies where there are trillions of dollars traded daily and most of it is standard business activity, hedging, and the like, not everyone in the market is trading directionally for profit. But from our analysis I think we can draw the conclusion that with proper risk management (a whole other topic) a trader could begin taking calculated bets at this level before a potential breakout to the upside..
In conclusion Multi timeframe technical analysis is a great tool for timing if used objectively with the proper understanding that charts are timing tools not crystal balls. Thanks for reading. If you enjoyed this post, or learned something new, please like and follow. - greatly appreciated.
-Chad
First and foremost, I want to state that it is very important to have a well thought out fundamental reason for why you want to be involved in the asset you're working with, you should have a strong knowledge of the asset and the fundamental drivers of it, if you're using your discretion to make trading decisions this is of upmost importance. If your a college athlete maybe you know a lot about footwear and apparel, if your a doctor maybe you know a lot about medical supply companies, if your a teacher maybe you know a lot about educational software developments, you get the idea. The point is, stick to what you feel comfortable with first because fundamentals are really the most important drivers of markets, discretionary traders should view charts as timing tools and nothing more. You may feel all you need is charts, but I warn against this approach because the human mind will find patterns in everything and it's extremely important to remain objective and emotionally detached from your ideas so you dont ride losers and cut winners short, which seems obvious but when your in an emotional state while moneys on the line its very easy to find yourself on the wrong side of the market.
I chose to use EURUSD as my example chart for this post because I've position traded the currency markets for many years and its the most heavily traded asset by volume in the world hands down, making the price action very clean.
Fundamentally I like shorting the dollar because I feel with inflation and rate hikes already priced into the market that there is a greater possibility of the dollar falling than the dollar rising in the short/medium term, I feel buying the dollar on rate hikes would be a one dimensional novice perspective held by someone (retail traders) who don't fully understand this markets dynamics.
On to the charts...
First you want to choose your timeframes. Because I am investor and a long term position trader I use the Quarterly, Monthly, Weekly, and Daily timeframes. These timeframes individually are also popular among longer term traders making the signals more reliable.
Second, you want to start with your highest timeframe, mine being the quarterly I'll look there first, what I see here is an upward breakout 2 years ago in January 2020, whereafter we trended up for a few months, and then began another downward trend that some would argue is a pullback from this perspective, which I'm inclined to agree with because we are currently sitting right on support of that 2020 breakout as of this quarter (which will end in 10 days.)
Next we will go on to the monthly as we work our way top down to shorter term timeframes. As I highlighted, the monthly is finding support at the breakout level at the 1.20 level as shown in the last 2 months. Last months candle gave back 30 percent before it closed after touching the 1.20 level and this months candle is very small and forming what is known as a hanging man or a doji, names vary, the idea is to recognize this as buying demand, not a pattern to trade that works every time.
The Weekly chart shows with more clarity what we have just discussed. Only one week out of the last 6 was able to even make it down to 1.20 because demand is picking up at this support level.
Lastly, on the Daily, you can clearly see where the market fell to the extreme, demand picked up, forcing EU back into a consolidated range at a higher level. By objectively applying the fib trend tool you can see scaled buying taking place at the lower levels, signaling that demand is increasing here as well.
Does that mean that this will go to the moon tomorrow? Absolutely not, I never expect the market do exactly what I think it may do, it seldom happens that way, markets are highly efficient and highly random, especially in major currencies where there are trillions of dollars traded daily and most of it is standard business activity, hedging, and the like, not everyone in the market is trading directionally for profit. But from our analysis I think we can draw the conclusion that with proper risk management (a whole other topic) a trader could begin taking calculated bets at this level before a potential breakout to the upside..
In conclusion Multi timeframe technical analysis is a great tool for timing if used objectively with the proper understanding that charts are timing tools not crystal balls. Thanks for reading. If you enjoyed this post, or learned something new, please like and follow. - greatly appreciated.
-Chad