Hey, hey, what's up my friend?
In today's video post it's all about understanding multiple timeframe analysis.
Have you ever, for example, you're entering off the 1-hour timeframe.
You find a setup on the 1-hour time frame.
And then you think to yourself, "What is the higher timeframe doing?"
Then you start to look at the higher timeframe.
You look at the monthly, the weekly, the daily, you look everything, and you get confused.
You start to doubt your own trading setup on the 1-hour time frame and then you simply don't trade.
Because you have no idea what a higher time frame is doing.
Should you be looking at the monthly, the weekly, the daily, the 4-hour, the 2-hour, what should you be looking at?
I think this is an issue that a lot of traders can’t fix.
In today's video post I will basically break it down for you, and explain to you how to actually define your higher timeframe based on your entry timeframe.
What are multiple timeframes
Let me explain to you in a very layman manner.
Multiple timeframes allow you to put on a pair of lenses to see or rather to zoom in to see what price is currently doing right now.
As well as to put on another pair of lenses to zoom out and see what price is doing in the big picture.
This is basically what multiple timeframes allow you to do.
You can zoom in to see what is the current price action of the market or can zoom out to see what is it doing over the last few months, or the last few years.
All this can be achieved using multiple timeframes.
Just to walk you through to understand how the candles actually form on the different timeframes.
Let's say on the 1-hour chart you can say two candles.
I'm just going to walk you through a very simple example:
The first candle is a bullish candle, it opened on the lows and closed above.
The second bearish candle opened on the highs and closed on the lows.
Now you have two 1-hour candles.
We can combine these two and make it a 2-hour candle, which will look something like a bearish pin bar.
Which is a 2-hour candle.
The 2-hour basically encompass the price action of the first candle and the second candle.
Does that make sense?
I hope now you understand how the candles on the higher timeframe come about.
It's all based on the candle structure or rather the price on the lower timeframe.
If you're unclear, just take some time to digest this piece of information, and to be honest, it took me pretty much a long time to figure this concept out.
I'm a pretty slow learner, to be honest.
Let's move on…
How to select your timeframe
Now, how do you actually select your timeframe to trade?
This is an important aspect of trading.
Often, I've seen traders tell me, "Hey Rayner, I'm looking to enter off the five minutes timeframe."
I ask them, "Okay, so which timeframe are you looking at as your higher time frame?"
They say, "Oh, I'm looking at a daily timeframe."
Then to me, that doesn't really make sense, because if you are entering off the five minutes timeframe, then the daily timeframe to you is noise because it's too far away.
You're trading right now, in the now.
But you're looking at the big picture as a higher timeframe.
That is pretty much irrelevant.
Similarly, if you are looking to enter off the say the weekly time frame, and you go down to a lower timeframe to find an entry.
Let's say you go down to the 1-hour timeframe.
Again, it doesn't make sense.
Because the weekly time timeframe is way too far away from your entry timeframe, which is the 1-hour timeframe.
Now the question is, “Rayner, how do you find the right balance between your entry timeframe and the higher timeframe?”
Let me share with you a technique on how you can actually go about finding the right balance.
It's what I call a factor of four to six.
This is something that I didn't come up with.
I read it from Alexander Elder and he shared this technique that he used to actually classify his timeframes.
Let me explain…
The factor of 4 to 6
Let's say you're entering off the 1-hour timeframe.
A factor of four would be the 4-hour timeframe.
One multiplied by four, it gives you four.
A factor of 6 would then be the 6-hour timeframe.
Needless to say, if you're entering off the 1-hour chart, then the 4-hour timeframe can be your higher timeframe.
Or the 6-hour timeframe can be your higher timeframe or even a 5-hour timeframe can be your higher timeframe.
Because anywhere from a factor of 4 to 6.
This is how you go about selecting your higher timeframe.
Before you can actually select your higher timeframe, you must know which is a timeframe that you want to enter off.
In other words, what is your entry timeframe?
Once you have defined your entry timeframe.
Then you can define your higher timeframe.
Here are a few examples for you to look at an entry timeframe and higher timeframe: