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Multiple Time Frame Analysis

Multiple Time Frame Analysis means looking at a chart of a specific stock at different time periods. We can analyse the trend of the stock Monthly, Weekly, Daily, Hourly or even 15 mins to 5 mins. For example, let us look at IGL Chart from July 2020 to Nov 2020.

Figure 1 IGL Monthly Chart from July 2020 to Nov 2020 for our Analysis

In the above chart, we can observe the trend was down and from Oct, 2020, the trend reversed on the monthly chart. However, if you follow the same chart on a weekly base as in Figure 2 we will find multiple Swing Highs & Swing Lows. Also, each Monthly Candle formed above is nothing but price action that happens on a weekly, daily and hourly basis.

In Figure 1 you could see Oct Monthly Candle, which opened higher than a previous monthly candle, dipped and then went back and closed higher than Sep Monthly Candle, forming an indecisive candle.

In Figure 3 you can find the Daily Candlestick chart. Though the Monthly & Weekly Candlestick of Oct was Green on daily basis, it had many red candles and big green candles as well. Similarly, you will find Figure 4 which is on an hourly basis has many Swing Highs and Swing Lows.

Figure 3 IGL Daily Candle Chart from Jul 2020 to Nov 2020

Figure 4 IGL Hourly Chart for Nov, 2020

So as Traders, we need to look at trends across various time frames. The following two points need to understand clearly.

1. Higher Time Frame establish and dominate the Trend. So major trend is in the higher time frames and there could be minor trends in smaller time frames

2. Trend reversal or change in Trend occurs from smaller Time frames. Once established on the smaller time frame, it gets rolled up with Higher Time frames

How to use Multiple Time Frame Analysis

  • Traders can get a micro view of larger time frames, which can, in turn, confirm the trader’s original analysis of trade. It is like using a backup pattern and fine-tuning an entry. An example would be having a pattern on a weekly chart and using a daily chart to confirm the entry.

  • Risk can be managed more effectively by combining time frames. Profits or Stop Loss can be planned effectively.

  • If confirmation of a Longer Time Frame is clear then trade can be initiated on the shorter time frame and enter trade multiple times for a shorter period gain. For example, if the stock in the longer time frame is bullish and in a shorter time frame has dipped, then trade can be initiated every time the stock dips. So multiple short-term profits can be booked.

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