Back to Technical Analysis

Technical Analysis · Beginner · 5 min

Timeframes and multi-timeframe analysis

You can explain how the same prices look on different timeframes and use a higher timeframe to put a lower one in context.

Same day, two stories

Open the same share on two charts. On one, it has been falling for hours, candle after candle. On the other, it is in a steady uptrend. Both charts are correct.

The difference is the timeframe. Choosing it is one of the first decisions on any chart, and it changes what you see more than most people expect. This lesson shows how timeframes relate and how to use more than one.

Small candles, big picture

The timeframe, as the first chart lesson showed, is the time each candle covers: one minute, one hour, one day, one week. Higher timeframes are built from lower ones. A four-hour candle combines four one-hour candles:

Candle chart 24 one-hour candles of a fictional share. Price rises from 100 to 106, pulls back over seven candles to about 103.20, then rises to 108.

The chart above shows 24 one-hour candles. After a rise from 100 to 106, seven candles in a row move lower to about 103.20. On this chart, the pullback looks substantial.

Candle chart The same 24 hours as six four-hour candles. The seven-candle pullback becomes one red candle and one candle with a long lower wick inside a clear uptrend.

Here are the same 24 hours as six four-hour candles. The seven falling hours have become one red candle and one candle with a long lower wick. The uptrend is obvious, and the pullback is a pause within it.

Multi-timeframe analysis means reading a chart on more than one timeframe, usually from higher to lower:

  1. Higher timeframe: the direction and the important levels.
  2. Lower timeframe: the details, such as where a pullback might end.

A common rule of thumb is to keep a factor of about four to six between timeframes, for example daily and four-hour, or one-hour and fifteen-minute. Dow Theory already distinguished primary, secondary and minor trends more than a century ago. The idea is the same: smaller moves sit inside larger ones.

Zoom out first

A fictional trader watches the one-hour chart above. After seven red candles, the trader expects the rise to be over.

None of the three views is false. But they lead to very different conclusions. A trader who checked the higher timeframe first would have read the seven red hours as a pullback inside an uptrend, not as the start of a reversal. That does not make the uptrend certain to continue. It only puts the small move in its larger context.

Common mistakes

The takeaway

A higher timeframe combines small candles into large ones. Check it first: a pullback on one chart can be a wick on another.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

  1. 1On the four-hour chart, tap the candle with the long lower wick that holds most of the pullback's low.

    Tap the chart.

    Candle chart Chart for the question: On the four-hour chart, tap the candle with the long lower wick that holds most of the pullback's low.

    The fifth four-hour candle covers hours 17 to 20. It dipped to the pullback's low at 103.22 and closed near its high at 105.22.

  2. 2How many one-hour candles make up one four-hour candle?

    Its open is the first hour's open, its close the last hour's close, and its high and low are the extremes of all four hours.

  3. 3What is a common way to use two timeframes together?

    The higher timeframe gives context. The lower one shows more detail, but also more noise.

  4. 4A share falls for five hours on a one-hour chart. What can the daily chart show?

    The daily candle includes those hours. Whether they matter depends on the larger picture they sit in.

of 4 correct.

Sources

Back to Technical Analysis