Zones across timeframes

You can mark a zone on a higher timeframe, find the same area on a lower one and explain why higher-timeframe zones usually carry more weight.

Zoom out, fewer zones

Zoom into a one-minute chart and you can find a base and a sharp departure every few minutes. Zones everywhere. Zoom out to a daily chart, and only a handful remain.

Both views show real price history. But most traders give far more weight to the zones that survive the zoom-out. This lesson explains why, and how the two views work together.

Higher timeframe first

As the lesson on timeframes showed, each higher-timeframe candle combines many lower-timeframe candles. A zone on a higher timeframe therefore:

covers more trading. A base on a four-hour chart contains hours of orders, a base on a one-minute chart only minutes.
is watched by more traders. Swing traders, position traders and day traders can all see a four-hour or daily zone. A one-minute zone is visible mainly to very short-term traders.
is less affected by noise. Small, random moves look like strong departures on tiny timeframes.

A higher-timeframe zone is simply a supply or demand zone marked on the higher of the timeframes you use.

On this fictional four-hour chart, the third candle forms a base between 95.29 and 96.10 after a decline, and the fourth rallies to 100.56: a drop-base-rally. Later, the tenth candle returns into the zone with a low of 95.53 and closes at 96.52. The last two candles rally to 102.

A common routine is top-down:

Mark zones on the higher timeframe.
When the price reaches one, look at a lower timeframe to see how it behaves inside the zone.
Ignore small, lower-timeframe zones that conflict with the larger picture, or treat them with much more caution.

Detail inside the zone

Here are the same 48 hours as one-hour candles, with the four-hour zone.

The price enters the zone on candle 38, with a low of 95.65.
Candle 39 dips to 95.53, the lowest point of the return, and closes at 95.90.
Candle 40 closes at 96.52, near the top of the zone, and the rally begins.

On the four-hour chart, all of this is a single candle. On the one-hour chart, a trader can see where the reaction started, which helps with the placement of a stop below the zone. Lower timeframes also show more noise. The one-hour chart contains several small bases inside the four-hour zone, and none of them would have meant much on its own.

Common mistakes

Starting on the lowest timeframe. You will find more zones than you can use.
Trusting small zones against large ones. The larger context usually wins.
Using timeframes too far apart. Four-hour and one-hour fit together; weekly and one-minute do not.
Forgetting that higher-timeframe zones are wider. Size the position for the wider stop.

The takeaway

Zones on higher timeframes cover more trading and tend to matter more. Lower timeframes show how the price behaves inside them.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1On the four-hour chart, tap the candle that returned into the demand zone.

Tap the chart.

The tenth four-hour candle dipped to 95.53, inside the zone from 95.29 to 96.10, and closed at 96.52.
2Why do higher-timeframe zones usually carry more weight?

A base on a four-hour or daily chart includes far more volume and attention than a base on a one-minute chart.
3What is a lower timeframe useful for, inside a higher-timeframe zone?

The higher timeframe gives the area. The lower one shows the details inside it, with more noise.
4A one-minute supply zone sits inside a daily demand zone. Which usually matters more?

Small zones inside large ones are often run over. The larger context usually wins, though nothing is certain.

of 4 correct.

Sources

Back to Technical Analysis