Quick Intro
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Regardless of what type of trader we are, most of us will look at the same chart in different timeframes to help make the "case for a trade". The risk of doing so is that we need to understand the fundamental concept of Multi-Timeframe Scaling (let's call it MTF scaling) as we inspect the various timeframe charts of the same underlying, otherwise, we risk receiving confusing signals - that rather than helping a trade decision, will possibly hinders the decision, if not even triggering the wrong decision.
This concept has possibly been published about here before - i though it won't harm to put together a quick primer / reminder if it helps some of our new fellow traders on TradingView - if this sounds interesting, please read on.
What do I mean by Multi-Timeframe Scaling?
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so what did we do here:
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Larger timeframe = Context and prevailing sentiment
Medium timeframe = Trade Decision
Shorter Timeframe = Trade Execution
i will do the same for exits as well - i assume most traders have a similar "protocol" before they hit the trigger - but may use different "preferred set of timeframes" based on the type of trading -- day traders may use 15min for trading, with 1min for execution and 1 or 2Hrs for context -- swing traders may use 1hr for trading, with 10 mins for execution and 1 day for context and so on ....
the problem for many traders, as they switch between the charts of various timeframes is, they will see conflicting signals .. the indicators/charts many of us use are usually not "sync'ed" - to demonstrate how this looks like, look at the chart on top - to demonstrate what happens when there's lack of indicator scaling across the timeframes, i used a 3-SMA basic system -- but the same concept applies for any indicators you use (RSI, MACD, ADX/DMI, Stochastic)....etc -- the list goes on :) --
so what's wrong here and how can it be fixed?
----------------------------------------------------------
There's nothing "really" wrong, it's just there's an element at play that we may not be aware of here - We need to get very familiar with that concept of "MTF scaling" when we switch between different TF charts - the concept is really simple, and the key is the "scale factor"
the 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the
===========
Regardless of what type of trader we are, most of us will look at the same chart in different timeframes to help make the "case for a trade". The risk of doing so is that we need to understand the fundamental concept of Multi-Timeframe Scaling (let's call it MTF scaling) as we inspect the various timeframe charts of the same underlying, otherwise, we risk receiving confusing signals - that rather than helping a trade decision, will possibly hinders the decision, if not even triggering the wrong decision.
This concept has possibly been published about here before - i though it won't harm to put together a quick primer / reminder if it helps some of our new fellow traders on TradingView - if this sounds interesting, please read on.
What do I mean by Multi-Timeframe Scaling?
-------------------------------------------------------
- in my trading, and as i check if there's a good trade to make on, say TSLA- i would first look at the daily chart -- cause i'm a position trader. is there a trend forming? has there been a recent consolidation? is there a possible breakout soon ? ..etc
- i then "zoom-out" to a larger timeframe -- say the weekly chart. i need to see the prevailing sentiment and the "context" - this is important because even if it looks like a bottom is forming on the daily, if TSLA on the weekly shows a diminishing momentum, i would avoid making a long trade
- assume the larger (weekly) timeframe is favorable -- so i will then "zoom-in" to find an ideal entry - using a smaller timeframe chart - the 1hr or 15mins
so what did we do here:
=====================
Larger timeframe = Context and prevailing sentiment
Medium timeframe = Trade Decision
Shorter Timeframe = Trade Execution
i will do the same for exits as well - i assume most traders have a similar "protocol" before they hit the trigger - but may use different "preferred set of timeframes" based on the type of trading -- day traders may use 15min for trading, with 1min for execution and 1 or 2Hrs for context -- swing traders may use 1hr for trading, with 10 mins for execution and 1 day for context and so on ....
the problem for many traders, as they switch between the charts of various timeframes is, they will see conflicting signals .. the indicators/charts many of us use are usually not "sync'ed" - to demonstrate how this looks like, look at the chart on top - to demonstrate what happens when there's lack of indicator scaling across the timeframes, i used a 3-SMA basic system -- but the same concept applies for any indicators you use (RSI, MACD, ADX/DMI, Stochastic)....etc -- the list goes on :) --
so what's wrong here and how can it be fixed?
----------------------------------------------------------
There's nothing "really" wrong, it's just there's an element at play that we may not be aware of here - We need to get very familiar with that concept of "MTF scaling" when we switch between different TF charts - the concept is really simple, and the key is the "scale factor"
the 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the
Comment:
Some examples for manual time frame conversion as requested:
** formula is Higher TF = scale factor x lower TF
Examples:
1 Month = 4 x 1 wks (some months are 5 weeks)
1 wk = 5 x 1 day (for stocks that trade 5 days a week, FOREX, Crypto, futures, may have a different "trading week")
1 day = 7 x 1hr (although it's actually 6.5 hours, but charting platforms will still use 7 hourly bars for a day of trading - standard session)
1 day = 13 x 30min (because the standard session is 6.5 hours)
1 hour = 6 x 10 mins
1 hour = 12 x 5 mins
and so on ...... pleae adjust to what you trade, your exchange time.. etc
** formula is Higher TF = scale factor x lower TF
Examples:
1 Month = 4 x 1 wks (some months are 5 weeks)
1 wk = 5 x 1 day (for stocks that trade 5 days a week, FOREX, Crypto, futures, may have a different "trading week")
1 day = 7 x 1hr (although it's actually 6.5 hours, but charting platforms will still use 7 hourly bars for a day of trading - standard session)
1 day = 13 x 30min (because the standard session is 6.5 hours)
1 hour = 6 x 10 mins
1 hour = 12 x 5 mins
and so on ...... pleae adjust to what you trade, your exchange time.. etc
"The 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the (length 9x7 =) 63 SMA or EMA on the hourly chart. 7 is my scale factor
by the same token, if i'm looking at an RSI of length 10 on a weekly chart (1 wk = 5 days for stocks, scale factor = 5), i need to be looking at the RSI of length 50 at the daily.