Trading is considered to be one of the most difficult professions. I believe this because although a professional trader is able to pick stocks that can move in double digits, there is a lot of behind-the-scenes hard work that goes on.

The trader has to consider multiple factors, various charting methods and indicators to take decisions as well. Each charting method and each indicator tells us a different set of information. There is a long process that is followed in order to arrive at that one stock that meets all the conditions of a setup. One of the most important aspects of this process is Multi Timeframe Analysis (MTA).

In today’s newsletter, we will build an understanding on Multi Timeframe Analysis. We will see what Multi Timeframe Analysis is, why it is important, and how to build a trade setup around this concept on PnF charts.

What is Multi Timeframe Analysis?

Multi Timeframe analysis refers to analyzing trend of a particular instrument on multiple timeframes. The purpose of doing this is to confirm the direction of the trend by looking at charts on a minimum of 3 timeframes.

On candlestick charts, there are various timeframes: Yearly, Quarterly, Monthly, Weekly, Daily, 75-min etc. On PnF and Renko charts, timeframes are in the form of Box sizes. 5% (Daily), 3% (Daily), 1% (Daily), 0.5% (Daily), 0.25% (Daily or 1-min). The right timeframes to choose for Multi Timeframe analysis depends in the holding period of the trader. Below is a general guide:

The idea of Multi Timeframe analysis is simple, confirm the trend analysis on highest timeframe and second highest timeframe, and take entry based on patterns forming on lowest timeframe.

Why all this hassle?

We must be thinking why go through this process. Can’t a decision be taken on a single timeframe? The simple answer is no.

The importance of Multi Timeframe analysis can be understood by using a Tenet of Dow Theory that states that: The markets move in Primary trend and Secondary trend. When a price is in a primary trend (bullish or bearish), the move is not always linear. Primary trend is often made up of multiple secondary trends. If the primary trend is bullish on the higher timeframe, the lower timeframe is made up of multiple bullish and bearish trend. When the decision is taken only on one timeframe, it is possible that the price could be in a secondary trend and could be a short term correction. Taking a trade in the direction of secondary trend would not be a good idea.

Another importance of Multi Timeframe Analysis is that when the entry is taken on a higher timeframe, the stop loss is usually big. This is not desired in case the price corrects. When the entry is taken on lower timeframe, the stop loss is small, and the entry is precise.

The charts below are of 360ONE on a candlestick chart, PnF chart, and Renko charts. Observe the price on each timeframe. Observe how many patterns are forming on each timeframe as well.

Multi Timeframe Setup on PnF chart

A simple Multi timeframe setup can be built on PnF chart. We will use 3%, 1% and 0.5% box sizes for this setup and the setup is for a bullish trade. The setup has the following rules:

1. The higher box size (3%) must have a bullish pattern active like Double Top Buy, Bear Trap, Turtle Bullish pattern, Bullish Anchor column or even a bullish column.

2. The next box size (1%) must have a bullish pattern active as well.

3. The lowest box size (0.5%) will be used to take entry upon a bullish pattern.

The logic of this setup is simple: A single Bullish pattern on 3% timeframe consists of many bullish patterns on 1% and the same pattern on 3% consists of even more patterns on 0.5% box sizes.

Participating on the lower timeframe helps in early entry and a smaller stop loss. This setup is called Pattern Cluster.

Observe the charts below of CROMPTON and ICICIBANK. Crompton has an Anchor column on 3% box size. The red box marked shows the patterns formed on 1% box size. The same price movement is marked as red box on 0.5% box size. The lowest timeframe shows the patterns that could have been used for entry.

On ICICIBANK chart, the pattern active on 3% chart is a Double Top Buy. The red box on 1% chart shows the price entire price action of 3% charts. The same price action can be seen on 0.5% charts.

In case the trader was to analyze only one timeframe and trade a bearish pattern based on that timeframe, then the trade would have been trapped. This is one of the best kept secrets of professional traders. Like this, there are other tools that traders use to build trading edge. I have taught them in my course on various charting methods and the Noiseless Trader Community come together once a week to discuss these concepts and put them to practice. If you are interested in learning these concepts and want to be part of the community, check out the TNT ONE membership, where you get access to all this.