Multi-Timeframe Analysis, Trade Planning and Market Psychology

8.1Layering Timeframes from the Top Down

Multi-timeframe analysis means viewing the same instrument on several timeframes and confirming direction from the longest down. It is usually organised in three steps: check the big picture (the environment) on a long timeframe, the support, resistance and patterns (the setting) on a middle timeframe, and the change in price behaviour (the trigger) on a short timeframe.

Timeframes are typically chosen at ratios of roughly four to six — weekly, daily and 60-minute, or daily, 60-minute and 15-minute, for example. The Triple Screen method proposed by the psychologist and trader Alexander Elder also combines three timeframes at a ratio of about five.

In the diagram, the weekly chart shows an uptrend with rising highs and lows; the daily chart shows a pullback to support; and the 60-minute chart shows the price breaking a small down-trendline within that pullback and turning up. It can be summarised as a moment when the longer trend and the shorter-term change point the same way.

The reverse is also common: a bullish shape on a short timeframe that is merely a rebound within a downtrend on the longer one. Deciding in advance which timeframe's direction takes priority is considered a precondition for consistent judgement.

• Long timeframe = environment, middle = setting, short = trigger
• A ratio of about four to six between timeframes (e.g. weekly, daily, 60-minute)
• The common approach gives the longer timeframe's direction priority over short-term shapes