MTA: Key Multiple Timeframe Analysis errors you’re making

Using multiple timeframes in your trading is a great way to boost your returns and hone in on the best opportunities. But there are some key traps with Multiple Timeframe Analysis that I see traders make again and again … wasting them time and costing them money.

Make sure you avoid these pitfalls …

What is multiple timeframe analysis (MTA)?

Multiple timeframe analysis is simply the art of picking our trades by looking at more than one chart.

Perhaps you’ll use a 4-hourly chart with a weekly chart … or a 1-minute chart with 15-minute and hourly charts …

Generally, two or three timeframes combined give the right balance.

I like to view it as a 3-step process:

Benefits of multiple timeframe analysis

1 • BETTER SETUPS

Have you ever jumped into a trade on a shorter timeframe, thinking you’ve found a great opportunity ….

This may look like a neat breakout opportunity in an established trend.

But when I zoom out to a daily chart, I discover …

By looking at more than one timeframe, we can avoid these kinds of mistakes.

2 • BETTER ENTRIES

Adding in shorter timeframes can help us to improve on our entry price. Looking for minor pullbacks or candlestick patterns can give us smarter entries.

These improvements may seem small, but getting into every trade a few points closer to your stop and further from your target can, over time, dramatically improve your reward-to-risk ratio.

3 • TRADE LESS

Multiple timeframe analysis can filter out a lot of weak signals. This means that we’re entering fewer trades, but having an improved success rate on the positions we do take.

Ultimately, this means more profits and less time in the market – it’s a win-win.

So, what can wrong with MTA?

1 • STARTING AT THE TOP

Where should an MTA strategy start looking for signals? On the shorter timeframe, or the longer one?

Many traders make the error of picking out signals on a short timeframe, then cross-checking them on a longer one.

There’s a few problems with this …

First up, it just takes a lot more time. You’ll get a lot of signals on a short timeframe, and you’ll give yourself more work.

But, more importantly, you’re starting from a blinkered viewpoint. If you set out from the longer timeframe, you’ll already know what you’re looking for.

2 • MISMATCHED TIMEFRAMES

Big-picture thinking is great … but how big do we go?

If I’m selling on a 5-minute chart, does it really matter than the weekly chart is showing an uptrend?

Beware of introducing irrelevant information into your shorter timeframes. Look for trendlines that present support/resistance and could interfere with our plans (like the example shown above).

3 • OUT OF SCALE STOPS AND TARGETS

If we’re trading multiple timeframes, it can be confusing to know how far we expect our trades to run.

Note: the trigger timeframe is only about getting the best entry. This is not going to influence how far the move will go.

Instead, look at your signal timeframe and build in what you’ve learned from the longer timeframe. For example, if you’re trading in the direction of a longer-term trend, perhaps you can push your profit targets out a bit further than you would if you were trading against that trend.

Getting it right

A lot of people are put off multiple timeframe analysis because it just feels like extra work. More charts to check … more rules to tick off.

However, it really doesn’t need to be, and should save you a lot of time by discounting a load of weaker signals.

If you want some more ideas on how to get started with MTA, take a look at this article.

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