Multi-Timeframe Analysis

What you will learn

• How to choose a higher timeframe for bias and a lower timeframe for entry.
• A top-down routine you can repeat on every chart.
• How to calculate the reward-to-risk ratio of a multi-timeframe trade.
• What to do when timeframes conflict.

Explanation

Multi-timeframe analysis means looking at the same market on two or three timeframes. Each one has a job:

• Higher timeframe (HTF): gives the bias, the direction you prefer to trade, and the major zones. Example: daily chart.
• Middle timeframe: shows the current pullback or setup. Example: 4-hour chart.
• Entry timeframe: gives the exact entry and stop. Example: 1-hour chart.

A common guideline is a factor of about 4 to 6 between timeframes (daily to 4-hour is 6, 4-hour to 1-hour is 4). Too close and they show the same thing; too far apart and they have nothing to do with each other.

Top-down routine

1. HTF: mark structure (lesson 2) and the nearest major zones above and below.
2. Decide the bias: long only, short only, or no trade.
3. Middle timeframe: wait for a pullback into an HTF zone.
4. Entry timeframe: wait for a break of structure in the direction of the bias, then place entry and stop.
5. Target: the next opposing HTF zone. Check the reward-to-risk ratio before entering.

Conflicts

Timeframes will often disagree. A 1-hour downtrend inside a daily uptrend is normal: that is what a pullback looks like. The rule is simple: the lower timeframe may only trigger trades in the direction of the HTF bias. If the HTF is a range or unclear, either trade the range edges with smaller size or do nothing.

Worked example

Hypothetical example: an index CFD quoted in points, €1 per point per unit. Spreads, financing costs and taxes are excluded. CFDs are leveraged and can lose money quickly.

• Daily: higher highs and higher lows. Bias: long only. Next major resistance (opposing zone): 52.40.
• 4-hour: price pulls back into a daily demand area between 49.30 and 49.90.
• 1-hour: price forms a lower high at 49.95 during the pullback, then closes above it. This is a bullish break of structure on the entry timeframe.

Plan: entry 50.00, stop 49.20 (below the 1-hour swing low and the zone), target 52.40.

1. Risk per unit: 50.00 − 49.20 = 0.80 points
2. Reward per unit: 52.40 − 50.00 = 2.40 points
3. Reward-to-risk: 2.40 ÷ 0.80 = 3.0
4. With a planned risk of €100: €100 ÷ €0.80 per unit = 125 units (in this hypothetical contract)

If the 1-hour chart had broken down instead, the trader would not go short, because that would fight the daily bias. They would simply wait.

Common mistake

Practice activity

Hypothetical: the weekly chart is a range between €40 and €60. The daily chart is in a clean uptrend at €58. The 4-hour chart just broke structure upward. Write down your decision and explain it in two sentences.

Key takeaways

• Each timeframe has a job: bias, setup, entry.
• Only take lower-timeframe signals in the direction of the higher-timeframe bias.
• Use the next opposing higher-timeframe zone as target and check reward-to-risk first.
• Fix your timeframes before the trade.

Next step

In the next lesson you will learn to draw supply and demand zones and grade them, instead of relying on single lines.