What is Multiple Time Frame Analysis?

Multiple Time Frame Analysis (MTFA) is a technique used to analyze an asset on a different time frame to get a better understanding of the overall trend and to identify potential trading opportunities. It involves looking at the asset's price movements over different periods, such as daily, weekly and monthly charts, to see how they interact and influence each other. It’s important to keep in mind that while the lower time frame charts can be used to identify better potential entry points, charts are controlled by the higher time frame trends. The higher time frame trends are therefore where we want to start.

A simple example to illustrate the concept; Imagine you're trying to decide whether to buy Adobe Inc. ($ADBE).  We first want to look at the monthly chart to determine the direction of the monthly trend:

If you were buying back during the GFC, well done! Monthly has been bullish for a long time, with YCLs between 2012 and 2020 really only  wicking through the MA10. More recently, 2022 had a strong correction before rebounding back towards the 2021 highs. A swing-high printed in Feb 2024 to signal another correction, but we are on the cusp of a monthly swing-low signalling we’re ready for the bull to come back on the monthly chart.

On the weekly chart we’ve printed a swing low and closed back above the MA10, so an ICL has been printed. That said, price has moved quickly and we’re now in the fourth week since the ICL, we can expect price to retrace as the ICL is backtested.

On the daily chart we can really see the aggressiveness of the move from the ICL and this daily cycle looks like it could be left-translated, which is a negative sign. But taken into the greater context of the monthly and weekly trend, we can safely assume that the next daily cycle low will be a higher low. 

The appearance of a higher low DCL will help the daily chart align with the weekly and monthly chart and serve as the back test of the intermediate cycle low; confirming the continuation of the uptrend on the lower time frame. The first DCL after an ICL offers traders / investors better RR as it solidifies what we want to see if an uptrend is to continue - higher highs and higher lows.

Important takeaways and other applications.

By looking at multiple time frames, we can get a more complete picture of a stock's trend and make a more informed decision about whether to buy, sell or look somewhere else.

For those with a higher-risk appetite, using MTFA can help more precisely pick out bottoms. As the market wants to shake off the bulls and get the bears to pile on, many bottoms form outside their normal timing bands with what we call cycle-inversions.

We’ll discuss cycle inversions in our next article.